New Delhi: The National Democratic Alliance (NDA) government plans to fund up to 75% of the investment required to supply electricity through separate feeders for agricultural and rural domestic consumption, aimed at providing round-the-clock power to village households.

The rationale for providing this generous grant portion for the Deendayal Upadhyaya Gram Jyoti Yojana for feeder separation, announced in the Union budget, is to get the states on board for timely execution of the plan.

Separating electricity feeders is aimed at ensuring that while farmers get the desired amount of electricity, the quality of power and its availability for households improves. It will also ensure that users are billed and technical and commercial losses because of theft are reduced.

The scheme, based on an initiative called Jyotigram Yojana in Prime Minister Narendra Modi’s home state of Gujarat, would work like this: While 30% of the investment requirement will be met through loans from state-owned Rural Electrification Corp. Ltd (REC)— the nodal agency for the ambitious scheme—60% would be a grant from the Union government administered by REC. The balance 10% will be funded through equity from the state government or its utilities. Also, once the project is completed, half of the loan given by REC will be converted into a grant, taking the total grant component to 75%.

“The note for the expenditure finance committee (EFC) will be floated shortly," said a government official requesting anonymity.

The project named after the late Deendayal Upadhyaya, a leader of the erstwhile Bharatiya Jana Sangh, the forerunner of the Bharatiya Janata Party, may require an investment of 53,000 crore. In addition, the integrated power development initiative which involves strengthening sub-transmission and distribution systems may require around 40,000 crore. REC will earn a management fee of 1% for administering the scheme.

Mint reported on 23 July that the exercise will require an investment of around 1 trillion.

For special category states, the BJP-led central government will provide 80% as grant and 10% as loan, while the balance 10% will be funded through equity from the state government. Once the project is completed, half of the loan given by REC will be converted into grant, taking the total grant component to 85%.

States such as Uttarakhand, Himachal Pradesh, Sikkim and Tripura are special category states which get extra funds from the Centre.

“Each state will be the executing agency with REC getting a management fee. The numbers are still being fine-tuned," said a second person aware of the contours of the scheme, who also didn’t want to be identified.

Queries emailed to a power ministry spokesperson on Monday evening remained unanswered as of press time.

The scheme is aimed at ensuring around eight hours of quality power supply to agricultural consumers and 24-hour electricity to households. In addition, it would also help reduce India’s aggregate transmission and commercial (AT&C) losses by five percentage points from the present 27%. The proposed investment will benefit companies across the entire power ecosystem—companies that manufacture meters, electric conductors, transformers, insulators, poles, towers and capacitors—in addition to construction contractors.

“Power is a vital input for economic growth and the government is committed to providing 24x7 uninterrupted power supply to all homes. Deendayal Upadhyaya Gram Jyoti Yojana for feeder separation will be launched to augment power supply to the rural areas and for strengthening sub-transmission and distribution systems," finance minister Arun Jaitley had said in his 10 July budget speech.

According to the World Bank, India’s per capita power sector consumption of around 800 kilowatt hour is among the lowest in the world. Around 600 million Indians do not have access to electricity and about 700 million Indians use biomass as their primary energy resource for cooking, according to the Planning Commission. Despite the subdued energy consumption, electricity subsidies have been rising.

While India has an installed power generation capacity of 249,488.31 megawatts (MW), it faced a peak deficit of 3.7% in June. Analysts say the data doesn’t capture the real demand. The lowering of the deficit is due to the unwillingness of the state boards to buy enough power because they cannot afford to do so.

“India’s power sector is going through a rough phase. The sector is struggling with the poor financial conditions of distribution companies, insufficient domestic coal, high costs for imported coal, insufficient gas supply, and delays in approvals/clearances," UBS Global Equity Research said in a 28 July report.