UDAY, State Debt and India's Credit rating

UDAY will bring all discoms into profit. Some of the worst discoms have done a turnaround (eg Haryana). Earlier they were quasi-State loans. Now they are shown on State books. No real difference, except accounting jugglery.

Can credit rating firms be fooled so easily? CR firms give the most debt-ridden countries best ratings. UK has one of the worst external debt (310% GDP). China has hidden its huge liabilities, where total debt is over 250%. Its growth depends on increasing debt, so the debt is unsustainable. Its banks are technically insolvent. Both countries have stellar ratings!!

RBI thrust transparency in gross bank NPAs. CR firms are using this to beat up India. So, yes, CR firms can be fooled. It doesn't make sense that India had a higher rating before 1990-91 reforms. As mentioned, India ratings have not changed despite an economic churn over 15-20 yrs. It had the same rating when its debt/GDP was 85%, same when FD/ inflation had risen steeply from 2009 and now when there is a structural improvement in govt spending, excellent macroeconomics & rupee that is appreciating against most currencies. If it makes "no sense", then it's nonsense. https://arvindagarwal1.blogspot.com/2019/03/and-disease-specific-targets.html

Centre bringing fiscal deficit down, states pushing it up

How would you now look at UDAY (Ujjwal Discom Assurance Yojana)?
Super success. Since the NDA government came to power, the cost of electricity has fallen in every State. Now it's up to States to improve their discom's health and power supply. Those States who worked hard under UDAY reaped benefits. Maharashtra, Gujarat, Karnataka, Haryana, Rajasthan and Tamil Nadu have benefited hugely. UP was the first one to join and then they did nothing. Now, the new government is acting on it.

States can recover UDAY losses indirectly. According to Piyush Goyal, Union power minister after GST comes into force, States will need alternatives to indirect tax incentives. He suggests they offer discounted long-term power tariffs. Under UDAY, discom needs to balance the books & State makes up the deficit. If discom become profitable, it can take over State burdens without increasing tariffs (which State will not want to do). HERE

UDAY has a major impact on State finances
RBI estimates States will breach 3% ceiling for FY16. FD will be 3.6% and 2.9% without UDAY. A similar impact is seen in FY17. Overall FD will be 3.0% and 2.3% without UDAY. FY18 will see some working capital outlay to State discoms. This doesn't have to be permanent. If States work hard, their discoms could reap profits and give back the monies.

Long-term success of discoms comes from becomes profitable
Discoms can become profitable by lowering AT&C losses; by conducting repair and upgrades in a cost-efficient and transparent manner; and by reducing their overhead. Eg.
1. Smart meters allow discoms to reduce manpower and improve compliance.
2. Stern action against power defaulters and those with illegal connections.
3. Buying reliable transformers (from an approved list of good suppliers) will reduce the need to replace them often.
4. Good discoms will close old inefficient power plants and transfer other plants to very efficient operators, along with PPAs (power purchase agreements).

Uday has hit state finances, GST will help: RBI study