Economic Survey 2016: Sweeping reforms in power but tariffs must come down

Economic Survey 2016 hints towards a positive growth of the power sector that is almost crippled with problems. Here’s the health report of the power sector.

• There has been record addition to generation capacity. 2014-15 marked the highest ever increase in generation capacity: 26.5 GW, much higher than the average annual addition of around 19 GW over the previous five years.

• Capacity enhancements in the power sector are unprecedented. These measures have helped to reduce India’s peak electricity deficit to 2.4 per cent, the lowest ever.

• There has been a comprehensive initiative to improve the health and performance of power distribution companies—UDAY, the Ujwal DISCOM Assurance Yojana

• Indian Railways is attempting to shift to open access for power purchase.

• Renewables have received a major policy push. Targets have been revised from 32 Gigawatts to 175 Gigawatts by 2022. In the latest round of auction under the National Solar Mission, tariff reached an all time low of Rs. 4.34 /KWh.

• Tantalising signs of moving to One Market in Power are becoming evident.

Though the power sector has seen sweeping changes but it is still almost paralyzed with challenges, said Jaitley.

Hence Jaitley came out with some long term policy issues for the revival of the sector.

• Power tariff schedules are currently complex. Given high tariffs on industry, firms may be shifting from purchasing electricity from utilities to generating their own power.

1. 47 per cent of firms report using a diesel generator

2. Between 2006-07 and 2014-15, electricity procurement from utilities grew by 4.6 per cent annually, slower than the 9.3 per cent growth in self-generation.

• Cross-subsidy surcharges and non-price regulatory measures are key tools for balancing DISCOMS’ equity and access considerations, but they may also hinder the creation of a nationwide electricity market.

• Compared to other developing countries, India’s domestic power tariff schedules have greater scope for progressivity. Increases in tariffs for rich households can be achieved while maintaining or reducing tariffs for the poor.

The Economic Survey 2015-16 suggest that tariffs can be made simple and transparent, reducing the gap between producers and distributors and by taking advantage of the possibility of greater progressivity in rate-setting, charges for the poor could be reduced while generating more revenues.

State Governments and State Regulators should work together. The power sector is a perfect crucible for making effective the cooperative-competitive federalism experiment that is now India, the Survey adds.

(Image credits: Indiatimes)