Revival of state PSUs, discoms crucial to sustain financial health: RBI
RBI report says 30% of state-level public enterprises are incurring losses, and are adversely impacting state ?nances
 "Revival of state PSUs, discoms crucial to sustain financial health: RBI")
The quality of expenditure of most states has been improving following the enactment of fiscal responsibility legislation, according to an analysis of Budget proposals for 2015-16. RBI said the states need to prioritise expenditure on physical and social infrastructure and economise on non- essential heads.
The RBI study, State Finances: A Study of Budgets, has analysed the fiscal position of state governments and focuses on the theme Quality of Sub-national Public Expenditure.
RBI said states and the Centre play equally important roles in securing overall fiscal consolidation. They are doing it through efforts to optimise revenue while allocating expenditure in the most productive manner.
Ensuring profitability of state-level public enterprises (SLPEs) and improving the viability of debt-ridden state power distribution companies would go a long way in boosting non- tax revenues.
There are 849 operating SLPEs in India with about 1.8 million employees. Major sectors of operation of SLPEs are manufacturing, finance, power, infrastructure, agriculture and allied services, RBI said.
SLPEs are expected to be financially viable and generate surpluses for providing dividend pay-outs to the state governments. Over the years, however, some of them have degenerated into loss making entities or at best, low profit earners.
On an average, around 30 per cent of total SLPEs are estimated to be incurring losses. This has adverse fiscal consequences since loss-making SLPEs depend on budgetary support, adversely impacting state finances instead of bolstering them, RBI added.
Referring to power sector in India, the central bank said there has been an expansion in capacity generation, private sector participation, electricity markets and restructuring of state electricity boards (SEBs). Yet, distribution and retail supply remain the weakest link in the entire value chain.
The central government announced Ujwal Discom Assurance Yojana (UDAY) in November 2015 to effect a turnaround in the financial viability of state-owned discoms and improve operational efficiency, RBI said. The aggregate technical and commercial (AT&C) losses have remained high. The overall AT&C losses moderated from 26.4 per cent in 2010-11 to 22.7 per cent in 2013-14, but they are still at an elevated level.
In this context, discom-wise AT&C loss reduction trajectories have been finalised in consultation with all state governments in June 2015.
STEPS TO SUCCESS
- States need to prioritise expenditure on physical & social infrastructure and economise on non- essential heads
- Ensuring profitability of state-level public enterprises and improving the viability of debt-ridden state discoms would boost non- tax revenues