Holding back Reform may apply just as well to the Electricity Sector

11 December 2020

The ongoing farmers’ agitation is a pointer to the stark global reality that successful reform programmes have been consultative and accompanied by a comprehensive outreach exercise designed to allay concerns of all stakeholders. Policymakers in the power sector would do well to carefully study the contours of the farmers’ agitation before going ahead with the ambitious reforms programme unveiled in May this year. A roll back of the proposed electricity reform (as a smaller sub text) is part of the demands being raised by the farmers.

Electricity reform was the first of the ‘lockdown reforms’ unveiled by the Government of India. The proposed amendments to the Electricity Act 2000, announced on 17th April, 2020 were followed by a letter from the Finance Ministry on 13th May, 2020 to fast forward action by states on some of the proposed amendments. Agriculture reforms came later but have of course taken centre-stage now.

There are several parallels in the two reforms initiatives. Many issues and tradeoffs are similar. Free markets and consumer choice versus the reality of market imperfections. Issues pertaining to the degradation of the environment, financial viability, prices, incomes and access, the roles of the centre and the states, fears, genuine or otherwise, of exploitation by faceless corporates, balancing the interests of consumers and producers.

In agriculture, the affected party quickly understood the body blow being dealt to them and began to rally its numbers to force a dialogue. A nationwide debate has begun. In electricity, possibly because the bill is still at the draft stage and that consequences may be more diffuse, less evident, seemingly more distant, the response has been more muffled. Still, the fact is that there are issues of import and that there is cause for concern, may be equally pressing in relation to this sector. There is an opportunity to introspect.

Evaluating recent proposals to reform the power sector in India is a paper that seeks to fill this gap by flagging facts and scenarios worthy of further debate and discussion. Through a simple scenario building exercise, this paper cautions that the parlous financial position of the distribution utilities after lockdown requires that “reforms” follow “recovery”. The concurrent roll out of stringent reform measures on several fronts during a period of severe financial stress could seriously impair the prospects of a viable power sector in the near future. This, in turn, will not only hamper our planned promotion of renewables- based electricity but act as a brake on the entire process of economic recovery. In designing the reform itself, lessons from the experience of earlier sectoral reform programmes and recommendations emerging from the limitations of the general architecture of central interventions need to be taken on board. The current exercise may hold no hope for an electricity sector in which the problems hold no easy answer.

The full working paper by Deepak Sanan is available here

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