The Economic Survey hailed the striking developments in the power sector since the Narendra Modi-led government took charge but also listed several challenges that need to be tackled. The survey highlighted the complexity of the tariff structure for different end-users, high industrial tariff and poor quality of electricity, tariffs set lower than the average cost of supply, and poor implementation of open access, among others, as issues ailing the sector.

“The reforms in this sector are more challenging than in many others due to the clear demarcation in the roles and responsibilities of the states and Centre under the Constitution,” the Survey said, referring to the sector being part of the concurrent list.

Emphasising the need to reflect the cost of power supply in tariffs, the Survey noted that the states with the highest losses were those where tariffs failed to cover costs. “Tariffs reflecting costs are a necessary condition for discoms to sustain themselves over the long run,” it said.

The survey highlighted that high and widely-varying industrial tariffs among states, coupled with relatively poor quality of power, posed a major constraint for the ‘Make in India’ campaign. It found that over 20% of firms considered electricity as a major constraint in their state of operation. “For some states, such as Uttarakhand, UP, Tamil Nadu, Andhra Pradesh and Kerala, the share is higher than 40%,” it said. This has led to a proliferation of diesel generators that account for as much as 72 gigawatt (GW), which is growing at the rate of 5 GW per year.

The slow evolution of open access, which provides an aggregation of the countrywide electricity supply and demand on the same platform, due to steadily rising state-levied cross-subsidy surcharge (CSS), poses another hurdle for a successful ‘Make in India’. Despite efforts to bring down CSS overtime, states have imposed significant tariff and not tariff barrier, leading to only 3% of total electricity being traded on the power exchanges, the survey said.

The case of Indian Railways in attempting to rationalise energy cost by procuring power through competitive bidding was noted in the Survey. It said that the transporter entered new pacts that will save an estimated R742 crore in 2015-16 and Rs 1,600 crore in 2016-17.

The Survey also lauded the highest ever rise in generation capacity in FY15 at 26.5 GW, and singled out the UDAY scheme and the push for renewable energy as achievements of the government.

Hits and misses
* Emphasising the need to reflect the cost of power supply in tariffs, the Survey noted that the states with the highest losses were those where tariffs failed to cover costs
* The Survey highlighted that high and widely-varying industrial tariffs among states, coupled with relatively poor quality of power, posed a major constraint for ‘Make in India’
* The case of the railways in attempting to rationalise energy cost by procuring power through competitive bidding was noted
* The Survey lauded the highest ever rise in generation capacity in FY15 and the UDAY scheme