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Issues with DISCOMs

  • IASbaba
  • November 5, 2021
  • 0
UPSC Articles
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ECONOMY/ GOVERNANCE

  • GS-3: Infrastructure & Power sector
  • GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Issues with DISCOMs

Context: The power sector in India is at an inflection point. Three developments are triggering a shift.

  1. Change in Centre’s approach in distribution segment
  • Till now, it was nudging the states to turn around the operational performance and financial position of power distribution companies (discoms) through tripartite agreements or regulation of coal supplies.
  • Now, Centre is trying to use coercive measures to rectify the situation of discoms.
  1. Pressure on government finances
  • COVID has impacted government revenues and there are demands for greater welfare spending and GST compensation from States (that will end in 2022)
  • In this context, the ability of government to continue to support discoms will increasingly be tested.
  1. Alternate Sources of Supply
  • Until now, consumers had little recourse to alternate sources of supply. Consequently, discoms, which are essentially geographical monopolies, were able to charge higher tariffs from commercial and industrial consumers to cross-subsidise agricultural and low-income households.
  • But the situation appears to be changing with emergence of captive power plants, decentralised solar power generators.
  • Solar, in particular, is being pushed by government with benefits from both explicit and implicit subsidies — land at concessional rate, exemption from interstate transmission charges, discounted wheeling charges, cross-subsidies for open access etc.
  • And as more renewable capacity comes online, and storage costs decline, the shift of most cross-subsidising consumers away from discoms seems almost inevitable.

Conclusion

A business as usual scenario will no longer suffice. Short of outright privatisation, market pricing of tariffs, options seem limited.

Connecting the dots:

  • Ujwal DISCOM Assurance Yojana  (UDAY)
  • PM Saubhagya Scheme

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