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Go for a One Power India

Chief Economic Adviser, Dr. Arvind Subramanian made a case for the power sector as a candidate for harnessing competitive federalism. Speaking at The Hindu Centre for Politics and Public Policy, he forcefully advocated the case for One power India. 

The proposal appears logical as a sequel to the introduction of the GST making India a single market: “despite the transitional challenges, GST is an extraordinary political achievement in the large and complex federal political structure such as India’s. Bringing together the Centre, 29 states, and 7 Union Territories – pooling their sovereignty - is unprecedented,” he said. 

Subramanian stressed on the imperative to provide soon the amenity of affordable and uninterrupted access to energy to all citizens. 

There have been several initiatives including the UDAY to address the humongous and mounting losses of state distribution companies. While UDAY dealt with re-structuring the Discoms, Subramanian pointed to the vastly varying complexities and divergences such as high transmission and distribution losses, aggregate technical and commercial losses, multiple tariffs, inefficiencies, cross-subsidisation that results in very high rates for the industry.

The Chief Economic Adviser referred to the very high tariff in India related to developed countries and even mid-sized economies. We have pointed to TANGEDCO levying around Rs 9 per unit for the SME sector, considered a priority and Rs 11.35 for high tension consumers, severely affecting their competitiveness. Contrast this with the irrationality of offering a low universal domestic tariff that worked out to just Rs 2 per unit for the first 200 units of consumption.  As pointed to a vicious circle:  Discoms reneging on long-term contracts and buying power from non-conventional energy producers (solar and wind) that are subsidised. This results in lower level of utilisation of thermal power capacity created at a high cost: the plant load factor of coal-fired stations has been falling steeply. The good doctor pointed to the power generators borrowing heavily from public sector banks. Their debt, estimated at Rs 2.4 lakh crore, has resulted in huge NPAs of PSBs. Added to the state governments’ taking over the enormous debts of Discoms, fiscal deficits of the states are under stress. 

With widespread shortages states have been buying power at high costs, plunging the Discoms into mounting debt. 

Subramanian advocated a single market for power within India and bringing power also under GST. He stressed the need for ending the complicated tariff schedule adopted by the state Discoms lacking in transparency and simplicity: the consumer is just not aware of these complex issues. He suggests rationalisation across the board, moving towards a simple, rational tariff structure across the country. 

While the attention paid in recent years has helped expand generation capacity. Purchase of  power from across the states thanks to improved transmission and competitive bidding have resulted in significant improvements.  But these need to be sustained through rational policies. With falling prices and massive subsidisation, the adoption of renewables in India is a tricky one. Subramanian stressed the need for choice in wholesale markets. The solutions suggested include greater transparency, balancing the advantages of the costs of coal versus renewables, providing opportunity to the consumer and crediting the subsidy on power for weaker sections through direct benefit transfers. 

The Chief Economic Advisor’s advocacy of cooperative and competitive federalism as a tool for reform appears exciting and necessary. This requires a unifying vision to ensure the financial viability of the power sector as a whole. Making India a single market for power addressing the financial stress in power generation, expanding choice and harnessing energy technology, all appear promising. The policy of sticks and carrots under the UDAY initiative could be extended to create a single market for power. 

Like Arun Jaitley did with passion in creating the GST, we need a similar effort in bringing together the states and UTs to move towards a goal of a one power nation.

 

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