Uttar Pradesh, Rajasthan, Tamil Nadu and Haryana are well placed to take advantage of the new scheme announced by the central government to restructure the debt of power distribution companies (discoms).
Except for UP, all these were revenue-deficit states in 2010-11 but Rajasthan was estimated to be turning into a revenue-surplus one in 2011-12 and Tamil Nadu to be eliminating its revenue deficit in 2011-12, according to their budget estimates. Haryana was estimated to be having only a small revenue deficit in 2011-12.
UP’s electricity board had the highest accumulated losses among state electricity boards, at Rs 42,745 crore as on March 2011. It was estimated to have a revenue surplus of 0.9 per cent of its Gross State Domestic Product (GSDP) in 2011-12, according to budget estimates. Rajasthan, whose SEB had incurred a loss of Rs 37,695 crore till March 2011, had a revenue surplus of 0.1 per cent of its GSDP in 2011-12.
The Tamil Nadu SEB had losses of Rs 40,183 crore at the end of 2010-11. The government had a balanced budget in 2011-12. Haryana’s discoms had accumulated losses of Rs 3,280 crore but the government had a small revenue deficit, of minus 0.9 per cent of GSDP in FY12.
Officials said these four states seemed likely to avail of the new scheme. "It will affect the revenue position of states in the short term. States like West Bengal, with a high revenue deficit, will not have the capacity to go for this debt restructuring," said Anis Chakravarty of Deloitte India. West Bengal had a revenue deficit at 3.7 per cent of GSDP in 2010-11. However, the budget had estimated this to come down to 1.6 per cent subsequently.
However, Madan Sabnavis, chief economist, CARE Ratings, said he’d like to confirm the fiscal deficit position of states before assessing whether they could go for a discom debt recast. “It will be a difficult decision for states, considering they have to contain the fiscal deficit to three per cent of the GSDP, else their ratings will get impacted,” he said. Most states have passed a Fiscal Responsibility and Budget Management Act to contain their fiscal deficit to this level in a given time frame.
Chakravarty differed, saying a comfortable revenue balance was more relevant here than the fiscal balance.
Among the four states mentioned earlier as better placed, UP was estimated to have a fiscal deficit within the three per cent mark, at 2.9 per cent of GSDP in its 2011-12 budget estimates, against 3.9 per cent in 2010-11. Tamil Nadu’s fiscal deficit was 2.8 per cent of GSDP in FY12 and Rajasthan’s was 2.4 per cent. Haryana’s fiscal deficit was estimated to be 2.7 per cent of GSDP in 2011-12.
Taking on half of the short-term debt of State Electricity Boards, as in the new scheme, would add to the debt liabilities of the states, unless they pay from internal resources. This 50 per cent of the short-term liabilities up to March 31, 2012, to be taken over by state governments, is to first be converted into bonds to be issued by discoms to participating lenders, duly backed by a state guarantee.
"This will help states to plan fiscal priorities in the medium term but they’d feel the pinch of interest payments on these liabilities in the short run”, said Devendra Pant, director and head, public finance, India Ratings.
The net interest outgo of UP was the third highest among states at Rs 14,120 crore in 2011-12 (budget estimates). Tamil Nadu had Rs 7,320 crore, Rajasthan Rs 6,780 crore and Haryana Rs 3,560 crore.