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Fuel for higher incomes, growth

Political economy of power has to be free from populism, writes Vipul Mudgal.

india Updated: Feb 19, 2007 03:56 IST

Power corrupts absolutely everyone, from mighty politicians to lowly linesmen. There is no way of knowing the exact details of decades of scandalous losses by way of theft, inefficiency and a premeditated policy mess in India’s power sector. Despite reforms, last year’s losses for power utilities were over Rs 22,500 crore, according to the Planning Commission. It is entirely possible that pilferage from the country’s power sector could be going into financing elections, political apparatus and even the underworld. 

The political economy of power rests on rudimentary values of patronage and populism. For decades, politicians have milked the State Electricity Boards mainly in two ways: by trading free electricity for votes and by siphoning off money through dubious contracts and questionable practices. Some of that is now beginning to change with power sector reforms but the process appears a bit too slow for an emerging economic superpower.

Narrow politics hurts The hidden costs of mismanagement and bad politics can be scary. Kirit Parikh, one of India’s best-known energy experts and an author of many seminal studies and reports, believes that the exchange crisis of June 1991 – when India had to literally pawn its gold reserves to the Bank of England to avoid reneging on debt repayments – was in fact an energy crisis created by the country’s over-dependence on imported oil. 

Some political parties still see free electricity as a part of welfare economics but there is sufficient consensus among policymakers on its downside. The big picture is that high growth and higher incomes come with increased productivity, which is fuelled by a reliable supply of energy at a reasonable price. According to the International Energy Agency (IEA), for every 1 per cent rise in GDP growth rate, India’s power sector needs to register a growth of 1.5 per cent. 

The power dividend

The graphic (click on the image) shows that India’s per capita power consumption is still very low. According to IEA, an average Indian consumes 520 kgoe (kg of oil equivalent) of energy against a world average of 1688 kgoe. The Chinese consume double (1090 kgoe) and the Americans over 15 times (7835 kgoe). A Planning Commission report says that we need to multiply our energy supply by 5 to 7 times today’s consumption, if we have to maintain a growth rate of 8 per cent over the next two decades.

The table (below the graphic) shows how the task of powering the India of our dreams is daunting but realizable. We need to pursue all viable and environmentally sustainable options and achieve higher efficiency and conservation standards. We also need a clear, holistic policy and a single ‘power hi-command’ for its execution. But before that the reform leadership needs to resolve policy tangles between the Central and State governments and among too many players, such as the ministries of power, coal, oil & gas, energy, atomic energy and non-conventional energy.

Email Vipul Mudgal: vmudgal @hindustantimes.com