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The 20 per cent cut in power rates for 21.4 million consumers in Maharashtra means a bigger fiscal problem for the state government.
Senior ministers, who did not want to be identified, admit the annual budget will be the first casualty, as the government will have to immediately find Rs 1,212 crore for the next two months to make an upfront payment to MahaVitaran, the state power transmission company, to compensate for its loss on account of the cut. So, impact is likely on spending for infrastructure, schools, public health and social welfare.
The fiscal deficit was 1.7 per cent of gross state domestic product (GSDP) in 2011-12. The government had budgeted a deficit of 1.6 per cent by the end of 2013-14. It now expects a rise to 2.1 per cent due to the cut in rates.
The government would also explore an increase in borrowing. Its debt was already high at Rs 246,447 crore at the end of 2012-13 and was budgeted to rise to Rs 270,551 crore in FY14. As a percentage of GSDP, it was 18.8 per cent in FY13.
A senior minister told Business Standard: “Maharashtra had a revenue deficit of Rs 2,267 crore in FY12. It will be a major challenge while preparing the budget for 2014-15, ahead of the assembly polls, slated for October.''
An effort is also likely to raise taxes – value added tax, stamp and registration duty, excise and motor vehicle tax.
Kameswara Rao, leader, energy, utilities and mining, PricewaterhouseCoopers India, said the industrial and commercial rates were higher than the cost of supply and there was scope for reduction, although the government will need to bear the entire shortfall in cross-subsidy. ''A better approach would have been to permit open access competitive supply for all industrial and large commercial users, with a modest surcharge. This would have had the same effect of reducing rates but with lesser burden on government finances. It would have also helped the stranded power projects in Maharashtra get customers. The cost of delivering power is high in most large states that have sizable dispersed agriculture and a rural consumer base, unlike Delhi (whose example led to the cut in Maharashtra), which has a very concentrated load and relatively higher value consumers. The states that fall in the trap of aping Delhi will end up paying a high price, and will burden future generations with uncovered losses,'' he said.
Economist C S Deshpande said the populist measure had no economic rationale. ''Instead of treading carefully on the path of fiscal consolidation, the government has opted for this giveaway, which is neither in the interest of fiscal balance nor on the side of good governance. This is competitive populism or a race to the bottom,'' he opined.
