Punjab to switch from free power to cash transfer of subsidy to farmers
Move part of reforms-linked additional borrowing Centre allowed to states this year
CHANDIGARH: The Punjab cabinet has agreed in-principle to switch from free electricity to cash transfer of subsidy to farmers through the direct benefit transfer (DBT) route from the next financial year of 2021-22 to become eligible for additional borrowing. Chief minister Capt Amarinder Singh chaired the cabinet meeting where this decision was taken on Wednesday.
The introduction of DBT to all farmers in lieu of free electricity given to them is part of the reforms-linked additional borrowing – 5% of the Gross State Domestic Product (GSDP), instead of 3% — allowed by the Centre to states for this year to meet their spending needs, amid a drastic fall in revenue due to the coronavirus-induced national lockdown.
CHANDIGARH: The Punjab cabinet has agreed in-principle to switch from free electricity to cash transfer of subsidy to farmers through the direct benefit transfer (DBT) route from the next financial year of 2021-22 to become eligible for additional borrowing. Chief minister Capt Amarinder Singh chaired the cabinet meeting where this decision was taken on Wednesday.
The introduction of DBT to all farmers in lieu of free electricity given to them is part of the reforms-linked additional borrowing – 5% of the Gross State Domestic Product (GSDP), instead of 3% — allowed by the Centre to states for this year to meet their spending needs, amid a drastic fall in revenue due to the coronavirus-induced national lockdown. The hike in borrowing limit will allow the fund-starved state government headroom of Rs 12,000 crore more in 2020-21.
As per the decision taken by the state cabinet, the power department will formulate a DBT scheme for next fiscal for ensuring cash transfer to farmers in lieu of free electricity and implement it in at least one district by December 31, 2020. These two steps will make the state government eligible to borrow 0.15% of its GSDP, or approximately Rs 900 crore, extra from the market.
The Union finance ministry, in a letter to the state governments on May 17, said robust systemic reforms are required to ensure subsidies reach farmers/ intended beneficiaries without leakage, and to improve the health of power sector.
“The state should put in place a scheme whereby from 2020-21, cash is transferred to farmers through DBT, instead of free electricity being provided to them whereas charges of the electricity are paid to the discoms by farmers from the amounts given to them,” it wrote.
Of 26 lakh farmers in the state, PSPCL supplies free power to over 12 lakh farmers through 14 lakh tubewell connections. The power subsidy bill of the state was a whopping Rs 6,200 crore in 2019-20 and is expected to go up further this year. “There is no clarity on the modalities of how the subsidy or cash transfer amount is going to be worked out and whether it is going to be based on land holding or electricity consumption. If it is consumptionbased, meters will have to be installed. Also, whether the cash subsidy will be given to all 26 lakh farmers or only those who have tubewell connections. These are tricky issues,” said a power department official who did not want to be named.
Other power sector reforms – reduction in aggregate technical and commercial (ATC) losses and gap between average cost of supply and average revenue realisation – having a weight of 0.05%, will also enable the state to borrow another Rs 600 crore.
Besides the power sector, the cabinet also granted approval to a slew of reforms related to universalisation of ‘one nation-one ration’ card, licensing reforms for ease of doing business, and strengthening of local bodies.
A spokesperson said with the state staring at 30% shortfall in revenue receipts in 2020-21, the cabinet gave in-principle approval to these reforms to make Punjab eligible to avail additional borrowing of 1.5% of GSDP.
Of the enhanced borrowing limit, 1% — four tranches of 0.25% — is linked to reform actions in these four sectors and a further 0.5% hike will be granted if milestones are achieved in at least three out of the four reform areas.
A committee will be set up to ensure monitoring of the implementation of the reforms. The cabinet also gave in-principle nod to amend the Punjab Fiscal Responsibility and Budget Management Act, 2003 accordingly.