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Discontinue free power for farmers, says Centre

States have been given time till March 2021 to roll out the DBT.FILE PHOTOA_Muralitharan

States have been given time till March 2021 to roll out the DBT.FILE PHOTOA_Muralitharan  

DBT a condition for higher borrowing

Tamil Nadu and other States have been advised by the Central government to discontinue their schemes of free electricity for farmers and instead adopt direct benefit transfer (DBT).

This is one of the conditions attached to the permission given to the States to increase their borrowing limit.

The States have been given time till March 2021 to rollout the DBT. By December 31, 2020, each State should implement it at least in one district, according to a communication sent by the Department of Expenditure in the Union Ministry of Finance to the State governments on Sunday.

The genesis of the free power scheme for farmers in Tamil Nadu can be traced to the AIADMK government’s decision to cover small and marginal farmers in September 1984. Six years later, the DMK government extended it to “big farmers too.” Only twice in all these years did the State attempt to change it, but the bid met with failure. A total of 21.4 lakh farm connections are enjoying free power. Although the Centre permitted States to hike borrowing limit by 2% in the fiscal deficit-Gross State Domestic Product (GSDP) ratio, they enjoy the benefit only if they implement the reforms recommended by the Centre, at least in three out of four areas.

There is also an untied component – 0.5%. If the State governments do not follow the Centre’s prescription on the DBT for the farm sector, they would not be eligible to raise the borrowing limit by 0.15%, which forms part of the overall figure of 0.25% for the power sector reforms.

There are three other areas — “one nation, one ration card,” ease of doing business and reforms in urban local bodies/utilities. Each of the four areas carries a weight of 0.25% each. If a State implements the Centre’s stipulations in the three out of the four areas, it will get 0.5% additionally.

There are two other components in the power sector reforms — reduction in aggregate technical and commercial (AT&C) losses and narrowing the gap between the Average Cost of Supply (ACS) and the Average Revenue Realisation (ARR), which is Rs. 2.21 per unit in the case of Tamil Nadu. The additional borrowing limit of 0.1% has been earmarked for the two components.

Besides, the reforms in urban local governance include revision of property tax rates and user charges for water and sewer connections. The deadline for the revision is January 15, 2021. This is another area that is regarded by those in power, regardless of the party, as a “hot stove.” For years together, the rates and user charges have remained untouched in the State, despite recommendations of the successive State Finance Commissions in this effect.

The State government has no problem in dealing with “one nation, one ration card” (ONOR) and the ease of business doing. As a matter of principle, it decided to implement the ONOR, which was, on an experimental basis, launched in two districts in January. As for the other, the State has a law which can be strengthened to cater to the Centre’s stipulations.

If Tamil Nadu is able to make use of the additional limit fully, it can go up to about Rs. 1.04 lakh crore at the fiscal deficit-GSDP ratio of 5%. For the current year, the State government’s plan for net borrowing is about Rs. 62,000 crore at the ratio of 2.84%. There is an indication that it may borrow Rs. 25,000 crore - Rs. 30,000 crore more.

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