Economy

How to power India’s job growth through power sector reforms

Updated : May 07, 2019 04:52 PM IST

The Modi government has tried to implement a trifecta of power sector reforms to help support job generation.

The country no longer lives in a world where fossil power and renewable power are separate.

Job growth is a hot button issue in the lead up to any election. India needs to create millions of secure jobs annually to keep pace with the number of young people entering the workforce.

The International Labour Organisation (ILO) states that 77 percent of workers in India will have vulnerable employment in 2019. Quality jobs provided, not only by access to reliable energy but by the energy sector itself, are more important than ever. The impact of a robust energy sector on jobs and the reforms carried out by the Narendra Modi government in the sector, which are discussed below, bolster the argument that the next administration needs to double down on energy sector reform to power India’s job growth.

Economic cost of poor power

To grow the economy and create jobs, particularly through a strong manufacturing sector, one of the most important tasks is to ensure affordable, reliable electricity. A World Bank Enterprise Survey conducted in 2016 found that almost half of business managers in South Asia identified lack of reliable electricity as a major constraint to their firm’s operation and growth. In fact, they ranked blackout as a bigger barrier than other issues such as regulations and taxes, corruption and human capital. In 2016, in manufacturing and services sector combined, the total loss in annual output attributable to power shortages was $22.7 billion in India.

According to the World Bank, other power sector distortions including cross subsidies, higher prices of coal for certain sectors, public management of power production and lack of accounting for environmental externalities cost India at least $86.1 billion in 2016 (nearly 4.1 percent of the GDP). As a result, Indian industries have been forced to make risky investments in captive power plants to meet their needs. Meanwhile, households and small businesses have relied on kerosene for lighting and expensive diesel generators for small-scale industrial power. The World Bank estimates that these distortions undermine the competitiveness of Indian industry and exports to the tune of 1-3 percent depending on the sector. A further $410 million in income is lost annually as a result of health-related impacts of power shortage.

Further research has shown that for many industries, “the production capabilities of the machines are directly dependent on the frequency of electricity.” Thus, if the frequency of electricity is low or fluctuates as is the case with India’s grid, firstly, this results in the “damage of sensitive machines and thus the industry loses important production time and volume; and secondly, it affects the quality of the batch and increases the rejection rate.”electricity

Power sector reforms under Modi

To counter these challenges, the Modi government tried to implement a trifecta of major power sector reforms and policies to ensure that the nation’s industries and households were adequately powered to support employment generation. These efforts included the Uday reform to improve the performance of state-owned utilities, particularly by bringing aggregate technical and commercial (AT&C) losses to below 15 percent; the ‘power for all’ initiative which aims to provide electricity to every household; and the induction of 175 gigawatts of renewable power by 2022. Five years later, while nearly every household has electricity access, an achievement to be lauded, the AT&C losses of the nation’s state-owned utilities under the Uday reform stand at an average of 21.1 percent, and cumulative installed capacity of renewable energy reached 78 gigawatts (the target is 175 gigawatts by 2022).

States report large billing losses in the period of accelerated focus on achieving universal electricity access in places like Uttar Pradesh and Bihar. Renewable energy projects are not receiving adequate number of bids or power purchase agreements are threatened by state governments to lower costs to levels that are discovered in other auctions. Finally, state utilities must now grapple with the challenge of an increased service area. Voltage fluctuations threaten household appliances and machinery of the manufacturing industry.

The road ahead

In the next five years, the Indian government must take advantage of the electrification of every household to focus on other power sector reform targets. New technologies, politically constraining price points, and multiple institutions and levels of governance jockeying for authority, must come together as a perfectly choreographed dance. Otherwise, the newly empowered millions will be back in the dark in just a few years’ time. Bold visions are needed to manage this complex electricity management exercise. Thus a coordinated approach between the Centre and States is crucial and concerted thought should be given to integrating all the power-sector related ministries and government departments at the Centre as well as at the state level. India no longer lives in a world where fossil power and renewable power are separate, especially as the cost of power from renewable sources continues to challenge coal and a national electricity market is in the offing. Inefficiencies that might arise from poor management as a result of over-institutionalisation cannot be tolerated in a complex sector that powers the jobs and livelihoods of 1.3 billion people.

Dr. Kartikeya Singh is deputy director and senior fellow of the Wadhwani Chair in US-India Policy Studies and senior fellow of the Energy and National Security Programme at CSIS.

Breaking Down Elections 2019 is a series of articles by experts of Center For Strategic and International Studies that will go beyond the headlines to provide a deeper look into what the 2019 Lok Sabha Elections means for the Indian polity and electorate.

How to power India’s job growth through power sector reforms

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