Yet again, the summer of 2014 saw India reeling from the energy crises as temperatures hit a record high in six decades. According to a 2014 World Bank study, India’s energy sector problems keep 300 million without power. Paralysed infrastructure, burgeoning consumption characterised by demand outstripping supply exponentially and non-performing policies have resulted in an undesirable cocktail of repeated energy crunches.
Tracing the roots, a practice of ill-targeted producer and consumer subsidies has been combined with policies designed to obstruct import substitution and protect the domestic manufacturing sector (which according to the World Bank, has accumulated debt to the staggering tune of Rs. 3.5 lakh crore or $77 billion – 5% of the country’s GDP—in 2011). As a result, India finds itself dangling halfway uncomfortably on its route to a liberalised and well-functioning energy landscape. To cross this chasm, India will need to overcome two fundamental challenges. Domestically, energy theft and the failure to ensure revenue collection along the supply chain threaten the effectiveness of local players. Second, India needs to be cognisant of the geopolitical risks associated with its increasing import dependencies and, contrary to an isolationist approach, realise the country's interconnectedness with global price trends.
India’s energy sector will need to take the following tactical steps to enforce comprehensive reforms and enhance competitiveness.
First, the managerial autonomy of energy companies needs to be reformed. Public or private, central or state, the steering hands of the energy sector participants should be allowed to leverage financial resources and work towards heightening competitiveness by reacting to global market dynamics independent of political bureaucracy or promoter company shackles.
Second, the energy industry will need to invite meaningful investment to ramp up supply in tune with demand requirements. Management teams' ability to execute projects in a timely and efficient manner will be essential to compete for and lure sticky international investors.
India would do well to take a leaf out of China’s energy play book. As China’s energy demands exploded underpinned by a magnification of the manufacturing sector, the country strategically set about acquiring assets in Angola and Kazakhstan. Today, China’s resources encompass Central Asia, Russia and Latin America, ensuring consistency in supplies and minimised disruptions to meet growing economy demands.
A carefully designed combination of innovation, investment across the energy platform (new renewable and traditional non-renewables), and cooperation between an agile private sector and efficient public sector will create the foundation for an energy universe that India needs to meet its needs for today and aspirations for tomorrow.
Samia Shamim is an investor based in New York and a Harvard Business School alumnus
The views expressed by the author are personal