NTPC Limited, the state owned company which runs the business of generating electricity and allied activities has threatened the states of Andhra Pradesh, Karnataka and Telangana and said that it might cut power supplies. These states have cumulative dues of 4,138 crore rupees as of January 30 that have been pending for more than 60 days and will not be supplied power from Wednesday if the dues are not cleared. The states of AP, Telangana, and Karnataka get 3,470 MW of power supply from NTPC’s plants in Ramagundam, Simhadri, Talcher and Kudgi. The dues to distribution companies (discoms) in the said states have been rising exponentially. Only these three states had a total outstanding liability of 7,020 crore rupees as of December 31, 2018.
The liabilities of the states of Uttar Pradesh and Jammu & Kashmir are also rising despite “repeated follow ups at various levels in person as well as through letters”. Development comes in the backdrop of the rising demand for electricity in the states as general elections approach. The spot power price registered a 4% year on year rise in January 2019 and reached 3.33 rupees per unit. The rise in required receivables and coal shortages have put additional pressure on the NTPC’s performance. The company wants to expand its capacity given the rise in power demand in the country but dues to discoms do not offer financial leverage for this.
The macroeconomic condition of the state governments of Andhra Pradesh, Karnataka and Telangana is in shambles given exuberant spending to win the elections. The debt to state GDP ratio of Andhra Pradesh is at 28.7 percent in the budgeted estimate of the financial year 2018-19. This is one of the highest across the country with only the Congress ruled states of Punjab and Rajasthan ahead of it. The government under Chandrababu Naidu spent lavishly without caring for the macroeconomic health of the state. The extensive welfare policies in the last 10 years with low capital expenditure shoot up the debt of the state. Now the state government does not have money to pay the debt of NTPC and the people of Andhra Pradesh could face blackout if the government does not choose to pay.
The macroeconomic health of Karnataka is also moving southwards. The previous Congress government spent heavily on welfare. From lower castes to minorities, all got sops from Siddaramaiah led Congress government. The middle class was ignored and wealth generation did not grow on par with extension of welfare policies. The Congress-JD(S) government also moved on the same path, it increased taxes and expanded welfare. The fiscal deficit of the state increased from 2.57 percent of GDP in 2016-17 to 2.89 percent for the budgeted estimate of 2018-19. The total liabilities of the state (debt to GDP ratio) increased from 19.81 percent in 2016-17 to 20.73 percent in 2018-19.
The Telangana government opened its treasury to win the recent assembly election. The fiscal deficit of the state increased from 3.28 percent in 2015-16 to 3.49 percent for the budgeted estimate of 2016-17. The revenue deficit increased from 0.04 percent in 2016-16 to 0.61 percent in the budgeted 2016-17. The debt to GDP ratio of the state increased from 16.2 percent in 2015-16 to 18.6 percent for the budgeted estimate of 2017-18.
The expansion of welfare to win over voters has pushed these states toward espousing fiscal policies involving high debt. Now these states do not have enough money to pay the NTPC and this could result in blackout in the upcoming days.