An increase in debt, coupled with persistent losses of power distribution companies (discoms) and rising guarantees, could negatively impact State finances going forward.
According to an RBI report on State finances, for 19 States, the debt-GSDP ratio is expected to exceed 25 per cent in 2020-21. This may result in curtailing of capital expenditure, which could be applicable to discoms, which now have dues in excess of ₹1-lakh crore
The financial position of discoms is expected to weaken further this fiscal, as Covid-19 related lockdowns have severely impacted power demand, particularly in the lucrative industrial and commercial segments, while their cost structure is rigid due to minimum commitments for power offtake in long-term Power Purchase Agreements (PPAs). The problem gets compounded by the pandemic.
While the Centre has announced liquidity support of ₹90,000 crore for discoms, with an intention to tide over immediate liquidity concerns, another round of bailouts of loss-making discoms seems imminent in the aftermath of the crisis, said the RBI. This implies downside risks to State finances, it added.