The Planning Commission has asked states to hike electricity charges to not only save the ailing power sector but also use the subsidy to fund essential services like drinking water, education and health, which are essential for promoting inclusive growth.
"The way the current situation (can) be handled is through some combination of tariff increase and serious efforts to reduce AT&C losses," Plan panel deputy chairman Montek Singh Ahluwalia said, while addressing the conference of states’ power ministers.
In an economically sustainable model, the deputy chairman said, the subsidy should be there for only a certain category of people. The Centre is also coming out with a scheme to link central support to states with rationalization of power tariff.
States should not waste money for subsidizing power, but should use the funds for providing basis facilities like drinking water, education and health, he argued.
In the power and energy sector, Ahluwalia said, "We need to recognize that the objective of inclusive growth will not be met if the power sector is not put on economically sustainable basis," adding, "…it cannot possibly be the case that we are running an overall annual loss of about Rs 70,000 crore (in power sector)."
He cautioned that states, which had failed to raise power charges regularly would be required to make steep adjustments.
"Many states which have not adjusted tariff for 10 years in a row and assume that even a simple inflation adjustment of 5% … they (may) need to adjust it by 60%," he said.
The Centre also hinted that it is considering a bailout for state electricity distributors that are running in losses and are unable to pay for new supplies as they sell power below cost and also lose to pilferage.
Faced with chronic power shortages, the Plan panel has set a target of adding 88,000 MW capacity to its existing 200,000 MW over the next five years.