Electricity reforms essential to boost India's rise

Electricity reforms essential to boost India’s rise

Over the course of the eighteenth and nineteenth centuries, electric power fueled the industrial revolutions in the United Kingdom, the United States, and many European countries. In the last century, countries like Japan and the Republic of Korea took advantage of it for economic development. Recently, China’s massive economic growth has helped. Investments in power generation and distribution helped advance these countries economically and socially.

In 1971, the GDP of India and China was $118. India’s per capita energy consumption in that year was 98 kWh, and China was 152 kWh. Forty years later, China’s GDP had risen to $5,618, nearly fifty times that of 1971. In the same year, India’s GDP was $1,458, a modest twelvefold increase for GDP in 1971. It rose to 3296 kWh. India was far away 696 kWh.

It was estimated that one fifth of India’s population lived below the poverty line in 2012. About 50% of India’s population is classified as middle class. India has more than 900 million people in the age group 15-64. More than 360 million people are under the age of 14. This section of the population is also growing at a much faster rate than the total population. From the perspective of current levels of prosperity or population distribution based on age groups, India today more than ever needs to ensure sustainable employment of its present and emerging workforce. Increased GDP raises people above the poverty line and provides more money for the middle classes to invest in health care, security, and education. Improving income and education levels also reduces crime.

While China has benefited from lessons learned from many countries by investing in economic infrastructure, India has failed to do so for much of its independent history.

The weight of socialism on the energy sector

When India gained independence in 1947, its per capita energy consumption was 16 kWh, which is far less than what the country needs for social and economic growth at a rapid pace. At that turning point in its history, India adopted the Soviet socialist model. The state continued to invest heavily in the industry for the next several decades. On the one hand, this prevented the ability of human resources and private organizations from developing to their potential. On the other hand, the main enablers of social and economic development – education, health, highways or energy – have been deprived of adequate investment.

The collapse of the Soviet Union in 1991 acted as a catalyst for India to embrace economic reforms. Private companies started investing in power generation. But given the massive shortage of energy created over decades, combined with the later increasing demand, the investment over the 30 years has been far less than what is needed to achieve sustainable economic growth.

Energy transmission and distribution is still mostly state controlled. The power distribution companies (the inconveniences) bore the brunt of this model. Political parties make popular election promises—ranging from subsidized electricity to waiver of past dues—and force the harassment to honor those promises if they form governments. Repeated elections after elections in many states, this populism leads to annoyances that charge on average less per unit than what they buy the electricity for, leading them to default on their generation companies. This situation prevents private investment in power generation.

The impact of this deeply rooted problem is not limited to the energy sector. When power generators do not want to continue providing power on credit, governments are forced to bail out the inconveniences to pay the generators. The bailouts are done at the expense of modernizing and expanding energy infrastructure, as well as investing in key sectors such as healthcare and education.

Power loss due to theft and technical reasons is another systematic problem.

For a long time, these deep-rooted problems have provided a compelling case for further reforms in the energy sector.

The journey of reforms over 30 years

In 1991, India opened the field of power generation to private investment, which increased power generation in the country. Despite the sector’s many challenges, consumers in both rural and urban areas of India have benefited. By 2018, electricity had reached every village.

For several decades after independence, electricity was treated as a scarce commodity. If the post office, health care clinic, and major facilities had a power source, the village would be considered to have been electrified. This narrow definition of electricity was expanded in 1997 and 2004. If 10% of the homes in a village are equipped with an energy source, it is considered electrified.

Governments have repeatedly attempted to carry out further reforms in the energy sector with varying degrees of success, with the Electricity Regulatory Authorities Act 1998 and the Electricity Act 2003 being introduced to create national and international regulators to rationalize tariffs and subsidies as well as simplify the transmission and sale of transformers. Energy. These initiatives did not achieve their primary objectives. Hence, in 2015, the government launched Ujwal Discom Assurance Yojana, UDAY to revive the financial and operational turmoil. Given the depth of the harassment issues, which were further complicated by the COVID lockdowns, UDAY failed to achieve its goals after some early successes.

Some of the successes are noteworthy. Many countries have taken steps to control theft. In the Prime Minister’s Department, the electricity authorities have implemented a new technology to detect illegal connections. This has reduced power theft and increased legal power connections. Initiatives like these have already reduced energy losses, but they are still more than double the global average.

In 2020, the government announced an economic stimulus package of more than $3 billion to revive the pandemic-hit economy. This included again injecting cash to remedy the harassment. In 2021, the government announced an outcome-oriented package for crises, which included the introduction of smart grids and smart meters across the country. These ambitious initiatives are expected to benefit inconveniences by reducing operational costs, checking for thefts, and giving consumers detailed data about their electricity use. India has also established a national network linking the five regional networks. This will strengthen the transmission network across the country, ensuring a more equitable distribution of energy.

These reforms are noteworthy. It is a step in the right direction and will increase one’s energy consumption. However, the core problem of the energy sector – government control over harassment – remains unaddressed.

Lighting the path of development

India’s energy minister aspires to triple per capita energy consumption – the same level as the global average. It’s time to broaden the definition of electricity again. Only when the electricity reaches 20-30% of the village should it be considered electrified. Moreover, successes in the application and implementation of new technologies must be institutionalized across the country.

Today, private companies contribute significantly to India’s energy needs. The privatization of harassment is the big, long overdue reform. To this end, the government introduced the Electricity Amendment Bill in 2021. This proposes rationalizing subsidies and introduces other major reforms such as the push towards renewable energy. The bill promises to improve the precarious financial situation of most of the harassment and stimulate private investment in the sector.

In 2020 the government proposed transformative agrarian reforms that led to a year of protests. Ultimately the government withdrew the legislation. This was a major setback for economic reforms. Likewise, the Electricity Act of 2021 faced inclement weather, forcing the government to concede.

The hardships caused by the pandemic over two years and the year-long protests have dampened the government’s desire for reforms. It is unlikely that significant reforms will be initiated before the next national elections in 2024. The ruling National Democratic Alliance won a large majority in the 2014 and 2019 elections. In 2024, the NDA faces an even tougher challenge.

If the opposition wins, reform is unlikely. Opposition parties are linked to the failed left-leaning politics of the past. However, if the NDA wins decisively, it will have political capital to spend on reforms. Then, it may address the underlying problem of the energy sector that has cost the country tremendously for many decades. In this term, the NDA government sold the failed nationalized Air India to Tatas. In the next run, the NDA can finally privatize dysfunctional, money-losing and taxing harassment, generating more light in the nation.

The opinions expressed in this article are those of the author and do not necessarily reflect the editorial policy of Fair Observer.

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