India's prime minister is to tell states to raise electricity prices in return for access to a financial bailout package, a politically contentious move that risks a backlash from farmers and consumers long used to free or cheap power.
Narendra Modi has made overhauling India's largely loss-making utilities, buckling under $66 billion of debts, a priority, convinced that if he can fix their finances he will recover his reputation as an economic reformer willing to take tough decisions.
State-run electricity distributors are running out of cash and struggling to repay loans, squeezing banks' ability to spur credit growth and undermining Modi's campaign to attract more energy-hungry manufacturers to build new factories.
Under a rescue package that could go to the cabinet for approval as early as this week, states will be told they must work with local regulators and utilities to raise tariffs that have been kept artificially low, a senior government source with direct knowledge of the plan told Reuters.
In return for raising prices, the eight worst affected states will be allowed to absorb up to 75 percent of the debt on the distributors' books depending on their fiscal position, the source said, requesting anonymity because the plan is not yet public.