Uttarakhand

Uttarakhand was created out of Uttar Pradesh and endowed with a substantial benefit: sole access to cheap hydro power. Low-cost power allowed the state to attract industry by cutting tariffs, providing a stable financial base, and enabling a well-functioning sector. With low tariffs, the power sector has not become an arena for populist policies despite frequent electoral shifts. However, this comfortable situation also limited the pressure to use the breathing room created by low cost power coupled with high share of industrial consumption to address long-standing loss levels in other parts of the state. As the limits of low-cost power are reached, the threat to Uttarakhand’s high-level equilibrium comes from having to turn to high-cost thermal power and stagnating industrial consumption.

Paradoxes of Distribution Reforms in Maharashtra

Maharashtra is locked into a fragile equilibrium of unsustainable subsidies and high cost supply—a pattern initiated by the Enron project and repeated more recently—but mitigated by the fact that the state achieved household electrification earlier than most others, is relatively wealthy and can afford direct subventions, and has plentiful industrial consumers for cross-subsidies. However, Maharashtra’s equilibrium is threatened by the prospect of industrial flight from the grid; the state faces increasing pressure from open access on one hand, which will dilute the ability to cross subsidize, and high cost power on the other. Reforms increased transparency in a way that has made public participation more active, but the state has failed to make the kinds of managerial and organizational improvements that would have improved the overall performance of the sector.

Tamil Nadu Power Sector

Tamil Nadu, one of the wealthiest states in India, has achieved almost universal electrification, and also has the highest renewable energy capacity—both wind and solar—in the country. Over the last three decades, two regional parties—DMK and AIADMK—have alternatively governed the state and are locked into a pattern of competitive populism in which electricity subsidies play a big role. Early on, subsidies were well targeted and were also financially covered through cross-subsidies from other consumers and direct support from the government. By the 1980s, concern for financial discipline of the utility was abandoned, power for irrigation was made free, flat-rate meters were introduced, and growing theft was concealed under the carpet of agricultural subsidies, all leading to the deteriorated quality of supply and even more cross subsidies. Reform efforts did little to change the situation, with the state government controlling the electricity regulatory commission to prevent the ailing utility from reforming itself and protecting it from any competition. Ironically, Tamil Nadu is considered to be a power surplus state now due to falling industrial demand. There are few signs of Tamil Nadu climbing out of this spiral.

Efficiency and Welfare

Owing to historically-rooted regional imbalances in levels and modes of development; the state in Karnataka has struggled to provide resources for the less-developed, and agrarian northern districts that also play a key role in the competitive politics of the state. Until the 1980s, cheap hydro power accommodated these rising demands, even as dynamic tertiary economies centered on Bengaluru were creating a new political and economic image for the state. Rather than adopting strict economic principles in which cost-of-supply determines tariff and all regions are treated equally, Karnataka’s reforms involved a strategy of bureaucratic negotiation that has enabled wealthier regions to offset some of the costs associated with ongoing public subsidies to the northern regions and farmers. This has led to a relatively stable equilibrium, although arguably one that is dependent on continued willingness of wealthier regions to sustain this arrangement.

Introduction

The introductory chapter lays out the rationale for the volume and provides a framework for analysing the political economy of Indian electricity. We first present a historically-rooted political economy analysis to understand the past and identify reforms for the future of electricity in India. We next outline an analytic framework to guide the empirical chapters of the book, which locates electricity outcomes in the larger political economy of electricity, the field of politics that are specific to each state, and each state’s broader political economy. The chapter ends by providing concise synopses of the state-level narratives of electricity in the fifteen states included in the volume.

Conclusion

The concluding chapter uses the analytic framework of the volume to explain the political economy of electricity. First, social welfare concerns continue to play an important part in shaping Indian electricity; policy making in the sector will need to engage these concerns rather than wish them away. Second, successful states have managed to turn a vicious cycle or low level equilibrium between electoral and electricity outcomes into a virtuous cycle, by delivering on a combination of access, price, and service. Third, past reform efforts reform efforts have failed to seriously engage state-specific political contexts but instead sought to carve out zones of depoliticized decision making. We categorize the state cases based on their relative ability to do so. Finally, the conclusion reflects on how a political mapping of power can help understand the future of Indian electricity as it negotiates a growing turn to renewable electricity.

Insulated Wires

West Bengal had been in a low-level equilibrium characterized by low access levels but also, therefore, limited demands for subsidies. Nonetheless, declining finances prompted the long-standing CPM government to undertake reforms, but these were focused in internal restructuring, including successful negotiations with labor unions, with positive outcomes for loss levels and discom finances. However, the 2011 elections brought a change in government in part due to larger state politics around industrial policy, and the winning TMC initially returned to a more populist tack. The effect of blocking additional tariff hikes, and expanding rural electricity access led to worsened discom finances. There are signs that the TMC may slowly come to believe in the electoral benefits of a long term power sector view, one that limits the temptation for populist policies. If so, the turn toward a vicious cycle between electoral and power politics may be avoided.

Electricity Distribution in Rajasthan

Rajasthan went from very low levels of electrification and limited capacity to high levels of electricity consumption, greater access, and greater generating capacity over the last two decades. An important factor is that geographic variations within the state also lead to very different cost-to-serve conditions, although a single tariff is levied across the state, raising challenges to managing geographic diversity. Both major parties—INC and BJP— have taken turns offering greater power subsidies, focused on short-term thinking about the potential electoral benefits of power rather than long-term planning for the overall financial and technical health of the sector. Despite reform efforts, loss levels have not been staunched, financial health continues to decline, and the situation is exacerbated by unwise high cost supply choices, leading to a declining spiral.

Poverty in the Midst of Abundance

Madhya Pradesh is in a low level equilibrium of low quality supply, high loss levels, low collection efficiency, and growing subsidy. This outcome persists despite a reform effort, but one which only consolidated bureaucratic control and introduced a tariff shock without tangible gains to the population. The state has bet on electricity supply as a growth industry, increasing capacity five-fold since 2000, but the resultant overcapacity could further limit room to manoeuvre. The electricity sector continues to be perceived as a political risk, a perception shaped by a post-reform loss by the reforming party, the India National Congress, in 2003.

Extractive States and Layered Conflict

Jharkhand was carved out of Bihar, and at the time of separation received an endowment of cheap power, sources of cheap natural resources (e.g. coal), and a large industrial customer base. However, the power sector has been treated as a source of rents through contracts rather than a source of political support, with successive unstable and short term governments following an extractive rather than developmental approach. Moreover, the industrial customer base was tied to private utilities and the Damodar Valley Corporation (a Government of Indian undertaking) and therefore was not available as a source of cross-subsidy. The net effect is that Jharkhand has been trapped in a low level equilibrium of low access and low political demand for access.