'Maharashtra to turn revenue deficit after 20% power tariff cut'

State budget strong enough to absorb additional costs: CARE

Maharashtra will move from a revenue surplus to a revenue deficit position in view of increased government subsidy to the state-run distribution company (MahaVitaran) following a 20 per cent power tariff cut.

CARE in its report released on Monday however, said that in respect of all other parameters, Maharashtra would continue to adhere to the norms laid down by the Thirteenth Finance Commission. Although the fiscal ratios do get lowered, the state budget, given its size, is strong enough to absorb the additional costs arising from the subsidy.

The proposed reduction in power tariff is of the order of 20 per cent (this amounts to Rs 706 crore a month or Rs 8,472 crore a year) which would be compensated for by a transfer from the state government in the form of a subsidy and a part of it would be borne by the power company. The additional subsidy to be paid by the government would be Rs 606 crore a month or Rs 7,272 crore for a full year while the power companies will take on the cost of Rs 100 crore a month (Rs 1,200 crore for the whole year).

The impact of the proposed tariff cut on MahaVitaran (Maharashtra State Electricity Distribution Company) is expected to be revenue neutral as the shortfall is envisaged to be funded primarily by way of subsidy from the state government.

According to CARE, the credit profile of Maharashtra remains unchanged. However, it would be necessary to monitor the government finances closely especially in the next budget for 2014-15 where the government will have to make adjustments for this cost as well as look at alternative ways of increasing revenue or reducing expenditure.

In the past, MahaViataran has been receiving tariff subsidy from the state government in a timely manner (Rs 4,929 crore for the period April 1 to March 31, 2013) and the overall realisation of subsidy has been around 100 per cent in the past. Going forward, continued timely release of additional funds by the state will be crucial for MahaViataran to maintain its credit profile.