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Industry In UP Feels the Pinch of ‘Regressive’ Electricity Duty

New Delhi, , 24th Feb. 2021: The industrial sector in Uttar Pradesh has lately been bearing the brunt of the electricity duty and cross-subsidy charges on electricity, which has hiked the cost of production substantially for several manufacturing units.

The imposition of cross-subsidy to the tune of Rs 1.56 per unit of the electricity procured under open Access arrangement  by industries in the state ,  has come as a severe blow when they were struggling from impact of Covid – 19.

A cross-subsidy is a mechanism in which one set of consumers are charged higher tariff so that another set of consumers may be given electricity at a lower price. In India, the industrial units usually pay the higher tariff, but the National Tariff Policy, 2016, states that the charges should not be so onerous that they end up stifling industrial growth.

The electricity distribution system in U.P. has been undergoing a reform ever since the new government came to power in 2017. In 2018, the state government allowed industries to purchase power through Open Access Mechanism, as per the guidelines of U.P. Electricity Regulatory Commission (UPERC). The move opened up greater options for consumers to procure electricity from the most competitive of the power companies. In another positive development, the cross-subsidy charges, which in 2018-19were Rs. 0.63 per unit of electricity consumed, were removed from April 2020 onwards to promote industrial growth and direct/indirect employment generation in the state.

Further, Director (Commercial) of Pashchimanchal Vidyut Vitranm Nigam Ltd. (PVVNL), Meerut Region DISCOM issued an order to the Executive Engineers (Distribution) to levy electricity duty on the Open Access power purchasers in their DISCOM division, which led to a sudden hike in the cost of power by another Rs. 0.50 per unit in addition to cross subsidy of Rs.1.56 per unit. This was followed by another similar order by DISCOM Division Agra (DVVNL) in January 2021.

For the industrial units highly reliant on power for their production, this move has come as a blow, particularly when the manufacturing sector was looking for a respite and relief from the government to recover from the prolonged slump caused by the Covid-19 pandemic. These levies will definitely hamper the growth plans of Industries in U.P. which was envisaged by Govt. of Utter Pradesh.

The matter has not escaped the notice of FICCI (UP State Council), which has criticized the decision to impose such high levies as ‘a regressive step’ that shall only “escalate input costs besides eroding potential investor confidence”.

FICCI (UP) has also called the move ‘erroneous’ on the ground that a distribution licensee is not entitled under section 3 of Uttar Pradesh Electricity Duty Act 1952 to levy electricity duty on the power sold by trading Licensees under open access particularly from outside UP.

The definition of licensee in U.P. Electricity Act does not cover a trading licensee. Moreover, in 1998, the then government of U.P. had abolished electricity duty on own sources of generation.

According to PHD Chamber of Commerce and Industry, the move to impose such levies would be detrimental to the industry of U.P. “Such unnecessary multiple taxations would result in hampering free movement of electricity between the states, and therefore, would be prejudicial to the freedom of trade and commerce,” says Ranjeet Mehta, Deputy Secretary General, PHD Chamber of Commerce and Industry.

CITI (Confederation of Indian Textile Industry) has recommended the removal of the cross-subsidy charge, stating that any losses to the state exchequer by this move will be compensated by the industrial growth prompted by it.

“Although there will be some revenue loss to the state Discom because of non-charging of cross-subsidies, but the same shall be largely offset by an increase in the state GDP and increased direct and indirect employment generation by 2.5 lacs workers. So, the urgent need of the time is to have a holistic approach and not a compartmentalized vision to take the state further in industrial growth,” says CITI in a statement.

Several industry players have expressed concern over the mounting cost of production, as a result of the high electricity duty and cross subsidy charges.

“With the imposition of these electricity duty and cross-subsidy charges, the cost of power consumption has gone up exponentially, and unless remedied this will have a cascading effect on the state’s industry and the investment climate at large. I urge the concerned authorities to take the remedial measures at the earliest by removing this duty and creating a more conducive environment for industry to grow and prosper in Uttar Pradesh,” says Mr. Shishir Jaipuria, CMD of Ginni Filaments Limited.

The matter has already been taken up by FICCI, PHDCCI and CITI with the U.P. Chief Secretary, the state’s Minister of Industrial Development, and Chief Minister Yogi Adityanath as well.

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