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20% power tariff subsidy will make Maharashtra revenue deficit

power transmission

The Maharashtra government’s announcement of providing subsidy to the extent of over Rs 7,272 crore to reduce power tariff by around 20 per cent
power transmissionMumbai: The Maharashtra government’s announcement of providing subsidy to the extent of over Rs 7,272 crore to reduce power tariff by around 20 per cent will put an additional burden on the state exchequer making it revenue deficit, according to CARE Ratings.

The government had earlier announced a 20 per cent power tariff cut in Maharashtra, excluding Mumbai, and decided to provide a subsidy to the extent of Rs 606 crore per month for a year to state utility Mahavitaran.

To further reduce the burden on company, the state’s generation and transmission companies would be providing Rs 100 crore per month.

“Owing to the increased government subsidy, the state would move from a revenue surplus position to revenue deficit,” the ratings agency said in its survey.

However, in respect of all the other parameters, Maharashtra would continue to adhere to the norms laid down by the 13th Finance Commission, it said.

“Although the fiscal ratios do get lowered, the state budget, given its size, is strong enough to absorb the additional costs arising from the subsidy. The credit profile of the state thus remains unchanged,” CARE Ratings opined.

However, it would be necessary to monitor the government finances closely, especially in the next budget for FY’15 where the government will have to make adjustments for this cost as well as look at alternative ways of increasing revenue or reducing expenditure, it said.

CARE Ratings further said the impact of the proposed tariff cut on Mahavitaran is expected to be revenue neutral as the shortfall is envisaged to be funded primarily by way of subsidy from the state.

In the past, the state utility has been receiving tariff subsidy from the government in a timely manner and the overall realization of subsidy has been around 100 per cent in the past.

“Going forward, continued timely release of additional funds by the state will be crucial for Mahavitaran to maintain its credit profile,” it said.

PTI

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