Taking politics out of power
The electricity sector arguably presents the most critical infrastructure bottleneck, indeed supply-side constraint, facing the Indian economy. Standard solutions to the problem have revolved around deregulation and private participation in fuel exploration, power generation and distribution, coupled with efficiency improvements in public utilities. But such technocratic assessments simplify the issue and do little to meaningfully address the problem.
Any serious attempt to reform the electricity sector has to revolve around four objectives — increasing fuel availability, reducing distribution losses, periodic tariff revision, and reforming free and unmetered agriculture supply. However, if we are to make progress with any of them, we need to go beyond policy reforms and efficiency improvements and resolve the political “collective action problem”. Since each of them will adversely affect some significant electoral constituency, collectively political parties become prisoners of populist rhetoric, even when they privately support these reforms. Let me illustrate the challenge.
It is estimated that upto a third of India’s power generation capacity, both thermal and gas generators, is lying idle due to fuel scarcity. Further, a number of thermal power plants have less than a week’s fuel stock. Fuel shortages and large distribution losses are responsible for several inefficiencies and systemic distortions. For a start, they squeeze the actual available supply from both the generation and distribution sides. This, in turn, adversely affects the balance sheets of generation and distribution companies. In fact, addressing at least one of