Power bill may go up with reforms

Foreign investors turned net sellers in the March quarter and pulled out $6.4 billion from the Indian equity markets largely due to the Covid-19-led riskaverse environment, a Morningstar report said. In comparison, FPIs bought net assets worth

$6.3 billion in the December

2019 quarter. FPIs were net buyers in January ($1.71 billion) and February ($265 million). They sold net assets worth $8.4 billion in March.

Let us brace for higher power bills, going ahead. While privatisation of power distribution companies (discoms) can raise tariff rates, the proposed smart prepaid meters will force the customers to pay for power at unsubsidised rates upfront.

Discoms have been witnessing financial losses due to power theft, inaccurate metering and billing inefficiencies. As they have run up a debt of over Rs 54,000 crore, the Union government thinks privatisation is the way out.

While announcing various stimulus measures last week, finance minister Nirmala Sitharaman had said that electricity distribution companies in Union territories will be privatised on a pilot basis and she expected this to be a model to be replicated in states later. The minister hoped that this would improve efficiency and attract investment in the sector.

"When efficiencies improve, the cost should come down. If privatisation improved efficiencies, in cities like Mumbai and Delhi, where the discoms have been privatised, the power bills should have come down. Instead the power bills have gone up significantly. Further, in places with higher density of consumers, the power cost should be lower. But this has been otherwise in the cities," said Prasanta

Nandi Chowdhury, general secretary, Electricity Employees Federation of India.

In theory, privatisation can bring down costs due to competition. But in the case of discoms, private companies operating in a region has no competition and hence there will be no pressure on keeping prices low.

Further, smart prepaid meters will make power tariffs the same for poor and rich alike. In the current system, the cost per unit varies with consumption, and this ensures that the poor receive subsidised power. With prepaid meters, all the customers will have to buy power at the same rate.

However, analysts think there will be some government mechanism to support the poor when the prepaid system is adopted.

"The government has been discussing on providing subsidies under

With the Covid-19 pandemic outbreak that has shattered the financial backbone of almost all sectors in India, developers and builders have a reason to worry as they are likely to witness a significant dip in sales of their residential flats in this fiscal as compared to a year ago, leaving over a lakh of units to remain unsold. The real estate sector is expected to incur a whopping loss of Rs 1 lakh crore this fiscal.

The residential segment is likely to be the hardest hit in the coming 5-12 months, forcing all the entities to curtail operations, revisit planned developments and investments, according to a survey by KPMG India.

As per an industry estimate, over four lakh residential flats were sold last year, but a significant contraction in sales is likely to happen this year. "The credit crunch impact due to the Covid spread will create residential sales contraction, bringing down sales from 4 lakh units in 2019-20 to 2.8-3 lakh units in 2020-21 across in top 7 cities, incurring a projected loss of over Rs 1 lakh crore at the end the current fiscal," the survey said.

Chintan Patel, partner & leader (building, construction & real estate), KPMG in India, said, "With this pandemic outbreak, the real estate sector is likely to be handicapped in the short term, impacting over 250 related industries and economic sectors."

However, to capitalise on the intervention proposed by the government, the industry should resume operations post-lockdown by leveraging technology innovations. "I think these measures are likely to revive activity, accelerating Indian real estate's turnaround over the coming 12-18 months."

With subdued demand in the sector, counter-strategies have to be devised to mitigate the impact with a focus on cost optimisation, liquidity improvement, space design and layout efficiency maximisation, re-negotiations of contracts, and calibration of business operating models across the board.

Experts believe the Centre needs to support the sector with immediate measures. "The most significant step is none other than the financial support in the form of providing additional funding, loosening lending norms, extending repayment schedules, etc," Patel said.