Power shortage will continue to be an inevitable bottleneck in the Indian economy for many more years. On the economic front, the slow progress made in enlarging the power generating capacity, has compelled millions of rural people to live in darkness. Opposition to the establishment of thermal power plants, both from the environmental protagonists and short-sighted political parties, has thwarted the proposals of setting up super thermal plants. The much talked about revival of the Dabhol power plant is yet to brighten the gloom around. As the major multi-purpose hydro-power projects were accused of displacing millions of farmers and of sub-merging thousands of acres of land, even smaller hydro-power projects face strong opposition in different parts of the country.

The focus has to be, therefore, on promoting non-conventional, renewable energy sources. Some attempts in this direction have been initiated in the recent years. Solar energy and wind power are two of the major schemes supported by the Government of India. For reaching out to the distant villages devoid of communication facilities, the solar power programme appears to be the most suitable. By coordinating the efforts of the banking sector under its financial inclusion programmes, rural electrification can be achieved with the lowest investment, specially through solar power installation.

Renewable energy programmes

Government of India has set up a separate ministry to promote non-conventional energy sources, the Ministry of New and Renewable Energy. Besides more potential sources like the solar and wind power, a few other sources of energy are also chosen for development with a view to augmenting the total quantity of power available in the economy. Both fiscal and financial incentives are offered under the schemes specially formulated for this purpose. Attractive tax incentives are offered for the installation of wind mills, where the power generated is supplied to the local electricity boards at pre-determined rates. It is recently reported that some of the firms having wind mills are under the scanner of Income Tax Department for huge tax evasion relating to the revenue earned through power generation.

Government of India has also adopted an Accelerated Power Development and Reforms Programme for promoting the generation and utilisation of energy through various sources. An allocation of Rs. 3945 crore was made in the Union Budget 2007-08. As a part of this programme, under Rajiv Gandhi Gramin Vidyut Yojana, 44,216 villages have been electrified and 24,394 electrified villages have been covered for intensive electrification. BPL households (Below Poverty Line) numbering 1,741,886 have been given electric connections free of charge.

In a full page advertisement published in a number of dailies recently, the Ministry of New and Renewable Energy has enumerated its major achievements in ‘Five Glorious Years of Progress.’ It reveals that eight per cent of the total installed capacity of power in India is contributed by renewal energy sources. The achievements are listed as follows:
● Total villages and hamlets electrified under Remote Village Electrification Programme are 5310.
● 26 lakh square meters of Solar water Heating Systems collector area installed
● 40.90 lakh biogas plants set up,
● 504 Energy Parks set up,
● 284 Aditya Solar Shops established,
● Wind power generation capacity raised to 9756 MW,
● Small hydro power generation capacity created, 2345 MW,
● Energy generated by converting waste, 60MW.

The latest data available in the document of the Implementation of Budget Announcements 2008-09 indicates that only 54,000 villages and only 43 lakh BPL households have been provided electricity connections. The target of providing electricity to 125,000 un-electrified villages and 2.43 crore BPL households, has clearly, not yet been met.

Adopt DRI loans for Darkness Removal Initiatives

Differential Rate of Interest loans, it may be noted, were introduced in the 1970s for extending loans at a concessional rate of 4 per cent to families below the poverty line. Though this scheme has been in operation for over 35 years, it has not been able to achieve the desired goal. It was mandated that banks have to lend one per cent of their total advances under this scheme. The banking sector has never been able to reach this target till date.

According to the latest available data, these advances amount to Rs.634.46 crore, constituting only 0.06 per cent of the total bank advances as on March 2007. The number of accounts handled is 2.60 lakh. The most distressing fact is that the number of accounts has been consistently declining during the last ten years and also the percentage share of these advances is diminishing.

The failure of this scheme was due to the introduction of many populist poverty alleviation programmes, which combined soft loans with sumptuous subsidy components. Programmes like the Integrated Rural Development Programmes (IRDP) had disastrous consequences. Since no subsidy was available under this scheme, there were very few takers, though the interest rate was one of the cheapest. The DRI scheme, however, can be made more successful, if it could be used for extending loans to BPL families for installing solar power for domestic use. Banks do have schemes for financing solar power installations at concessional rate of interest; but they do not have any credit targets.

Banks may be asked to extend credit facilities to BPL families under the DRI scheme (call it Darkness Removal Initiatives, if necessary) for installing solar power system for domestic lighting. The amount of loan required per family for installing solar power system with two bulbs may be around Rs 13,000 only. Banks have to be directed to ensure that at least one per cent of their total advances are lent for this purpose, preferably in the rural areas, where electricity has not reached. As the over all target is to provide power through renewable sources to 2.43 crore BPL households, this scheme can play a crucial role in banishing darkness for a large number of poor households in rural areas. The electricity boards cannot provide electricity to all remote villages, even over the next two decades, considering their inherent problems of inadequate generation and inefficient distribution. Extending credit to the poor households at the concessional rate of 4 per cent would enable most of them to opt for solar power installation. And this loan may not erode drastically the total profits of banks, as only one per cent of their total advances are expected to be earmarked for this purpose.

Financial inclusion would be operationally more meaningful, if the DRI lending scheme is adopted to extend credit to the hitherto unreached poor rural households, who cannot hope to get the benefit of electricity for decades. Instead of retaining the DRI scheme as an ineffective scheme in their ledgers, the banks can channelise it for rural electrification. Since the loan component is small and interest rate is low, the BPL households can get the advantages of solar light at an affordable cost. Brighter light at home brings not only happiness. It would provide the facility for the school going children to read after sun set. Its contribution to the welfare of the family is invaluable.