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JUL 06 2012

India needs sweeping reforms in many areas to resolve power crisis

  • Economic Times, ET Bureau / Hyderabad
  • Created: Fri 06th JUL 2012

Sheila Dikshit in Delhi and Mamata Banerjee in Bengal have stoutly defended long-delayed power tariff hikes in their states. The power sector has flourished in Gujarat under Narendra Modi. Kudos to them.

But much more remains to be done in the country's power sector. India has commissioned a lot of new generating capacity, mostly using coal as fuel, in the last five years.

As much as 40,000 megawatts (MW) of new generating capacity has come up but only a fraction of this is being used. There are several reasons for this.

One, coal supplies are scarce because output from state-owned Coal India cannot keep up with explosive demand in growth. Imports are an option, but across the world, coal prices have spiked and using imported coal as fuel increases the price of electricity.

States regulate the price of power both when utilities buy power and when they sell it, and virtually proscribe costly electricity even if customers are willing to pay.

With utilities forced to restrict power purchases, generators have to keep capacity idling. This is a ridiculous situation in an electricity-starved nation. Finally, a decade of political opportunism has reversed many of the gains of early power reforms.

Theft gets political patronage. Many state governments give farmers free or near-free electricity. Inevitably, this translates into bankrupt state electricity boards and erratic, low-quality supplies with farmers paying a steep price to run diesel pumps and generators.

The power ministry alone cannot solve this problem. The government has to first scrap the 1973 Act that nationalised coal mining. Professional miners should be allowed to explore for and mine coal, boosting supplies.

Regulators in the states and the Centre should offer the flexibility to adjust power tariffs up or down so that supply matches demand.

State governments have to stop patronising theft and start charging for rural power. To ensure that states have an incentive to act, bodies like the Finance Commission and the National Development Council should link central funding to progress in power reforms. The needed reforms call for political leadership and courage, not technocratic tinkering.


Delhi Gujarat Regulators Finance Coal Import National Development Council

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