India wants states to raise power prices gradually as part of rescue plan

NEW DELHI (Reuters) - India's power minister said on Wednesday the government would like states to raise electricity prices gradually as part of a rescue plan Prime Minister Narendra Modi has urged to fix the finances of the country's money-losing utilities.

State-run electricity distributors, which collectively owe $66 billion, are running out of cash and struggling to repay loans, squeezing banks' ability to spur credit growth and undermining Modi's campaign to lure energy-hungry manufacturers to expand production.

Power minister Piyush Goyal said he would continue to hold meetings with states over the next few days to agree a plan.

"We are trying to introduce innovative ways to encourage gradual rises (in tariffs)," he told reporters, saying that tariff setting was the prerogative of local regulators but that the government wanted to help utilities fix the financial mess.

Modi is to take the politically contentious move of telling states to raise electricity prices, which are often held artificially low to appeal to key groups of voters such as farmers and the poor, and agree to performance improvements, a senior government source earlier told Reuters.

In return, states would be able to access the financial bailout package.

Modi, who successfully overhauled the power industry in his home state of Gujarat in the mid-2000s, has told the power ministry and states they must act urgently to fix the utility sector, a second government source said, asking not to be named.

The source said the rescue plan would go to the cabinet for clearance this month.

(Reporting by Tommy Wilkes, Nidhi Verma and Krishna N. Das; Editing by Malini Menon and David Evans)