India Matters, Expert Speak, Power, Thermal Power, Modi, UDAY

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While it is true that the economy is in a bad shape, all blame should not rest on the Narendra Modi government. Many of the economic problems started a long time ago and the previous governments were not vigilant enough to reduce them. The malaise of agriculture started decades ago and has deteriorated in the past few years with increase in population dependent on agriculture and lack of alternative rural employment. The problem of small size of the holdings and low productivity is an old one and today it has reached a crisis point.

The inadequate agricultural infrastructure has been pointed out by scores of agricultural experts. There are problems in storage of the harvest, market infrastructure, remunerative prices for produce and the role of middlemen. The availability of cheap credit is important for farmers but has been denied to them over the years especially small farmers who do not have adequate collaterals as a result of which they become victims of money lenders who squeeze them out of everything -- assets, cattle, land and produce which leads to their suicide.

Jobless growth also has been going on for some time as manufacturing industry has continued towards capital intensive production techniques so as to remain competitive.

 

The ITC industry which has flourished is technology intensive and does not accommodate semiskilled labour.  But many more problems have cropped up recently due to demonetisation. It gave a huge shock to the informal sector in which around 90 per cent of the labour force is employed.  Similarly GST has been contemplated over a long time and at last it has come to reunite the fragmented markets of India into a single market. But glitches galore have cropped up. These will take time to smoothen out.

The problem with the banking sector and the mountain of NPAs is also a legacy of the past. Crony capitalism flourished during the UPA’s time also and the result is a long list of well-known wilful defaulters. Private investment has been stagnant because of overcapacity in factories which is partly due to global factors like the slowdown in global trade and intense competition from China. To jump start private investment, the banking sector, especially the public sector banks will have to be brought back to health.

What seems wrong with the Modi government is that it has come up with bountiful promises which it has not been able to keep. It promised jobs for all of India’s youth but it didn’t happen.

 

It promised to bring back all the black money stashed away in safe havens abroad and enrich every poor person with Rs 15 lakhs in his/her bank account, but  it failed to do so. It has now promised power to all in the recently announced Saubhagya scheme which is an old promise made by Modi in his 2016 Independence Day speech. The fact that 40 million households do not have electricity after 70 years of Independence is indeed shameful. Lack of power in the 21st century translates into inability to earn a decent living and having a life without dignity and comfort.

Modi has promised power to all by December 2018 instead of his earlier deadline of March 2019. It will indeed be another uphill task for him, but it is a promise which he has to keep. The problem is not about getting power connections to households with the help of power cables and meters, but the inability of State governments to distribute power to these households by their discoms (power distribution companies). Most discoms are heavily in debt having had to distribute power at subsidised rates due to poll promises by state governments made in the past.

The UDAY scheme has taken over 75% of the debt of discoms and issued bonds to banks and other financial institutions to raise money for paying it off. The remaining 25 per cent debt would be treated as loans to discoms with cap on interest rates. Modi took stock of the progress of UDAY on July 21 this year and found that there has been an improvement in the narrowing of the gap between the discom’s average cost and the revenue raised by Rs 0.07 per unit which is not much.

 

According to the Central Electricity Authority, the average revenue realised by discoms per unit of electricity distributed by them is Rs 3.76 while cost of supply is Rs 5.01 per unit.  This is because of the increase in the rural base for electricity supply which is highly subsidized and also due to the rampant thefts and transmission losses.  Discoms from Tamil Nadu, Maharashtra and Madhya Pradesh have defaulted on their Power Purchase Agreement obligations with power generators.  They in turn are running at half their capacity because there is not enough demand for power from the state discoms.  Thus, cash strapped and due to AT&C (aggregate technical and commercial) losses, the discoms are unable to work efficiently even though Modi found out in his review that AT&C losses have come down due to UDAY to 20.2 per cent and governments of 16 States have taken over Rs 2.1 trillion debt of discoms.

On paper, when 99.5 percent villages have power connections why is it that 77% of households are not getting electric supply regularly? This is because of the exaggerated definition of an electrified village which declares a village electrified when only 10 percent households have electricity connection.  The moot question is whether the beleaguered discoms will be allowed to charge higher rates to recover costs because only then they can give power to all and become efficient and modernised.

There is no doubt that the availability of electricity to villages will improve the earning capacity of the residents as they will be able to use simple tools for improving their productivity and incomes. Refrigerators can preserve food, fruits and vegetables and women will be able to breathe cleaner air with electric cooking appliances instead of bio mass fuel. Many can be involved in food processing and making of snacks using electrical grinders and stoves for sale in urban areas. Healthcare in primary health centres and in educational institutions will improve. It will also lead to women’s safety and less accidents on the roads. Saubhagya has to succeed for NDA’s return in 2019.

The views expressed above belong to the author(s).

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