Budget 2020: Access to uninterrupted and affordable electricity will be key to achieve India’s $5 trillion economy goal
- Access to reliable and affordable electricity will be key to achieve India’s $5 trillion economy goal
- Private sector participation in the power transmission sector is another success story that has brought down tariffs by 40 percent and ensured timely completion of projects
- For a robust energy ecosystem, major reforms are required in the distribution sector
India has come of age in the last decade. She found her identity on a global stage. When faced with a vacuum of global leadership towards climate action, she took charge of ambitious targets for renewable energy generation and played a crucial role in the formation of the International Solar Alliance—a group of 121 ‘sunshine’ countries. Most importantly, India announced its ambitious plan to be a $ 5 trillion economy by 2024-25.
Access to reliable and affordable electricity will be key to achieve India’s $5 trillion economy goal. The Economic Survey 2018-19 pointed out that India lags significantly in energy usage compared to the global average. India needs to increase its per capita energy consumption three-fold to meet the rising aspirations of its people. China, for example, witnessed a steady increase in its per capita energy consumption between 1961-2017 as its economy started booming. There is a strong positive correlation between energy consumption and economic growth. An increase of per capita energy consumption by 2.5 times will help India accelerate its real per capita GDP to $ 5000.
As India seeks to accelerate its growth momentum, here are three recommendations for the upcoming Union Budget 2020-21:
1) Big Bang style power distribution reforms: Let’s address the elephant in the room. India will not be able to achieve a self-sustaining energy future without disruption in its energy distribution model. Mounting losses, billing inefficiencies and power theft have created financial stress for the distribution sector.
Imagine, you are a telecom customer and are unhappy with a certain service provider. You have an option to switch to other operators through mobile number portability. The power distribution sector, unfortunately, does not offer this option. Like in the telecom sector, privatisation will be central to revamping the power distribution sector. This will not only increase competition but will also ensure operational efficiency, increased focus on customer satisfaction and streamlined delivery of services. We already have examples of private sector participation in cities such as Mumbai, Delhi, Kolkata and Ahmedabad, where losses have narrowed, and high-quality power supply is a reality.
Private sector participation in the power transmission sector is another success story that has brought down tariffs by 40 percent and ensured timely completion of projects. For a robust energy ecosystem, major reforms are required in the distribution sector. Any further reforms upstream (in generation) will not yield any benefit unless the last mile is fixed. And, passing on subsidies to needy consumers should be done through the Direct Benefit Transfer route as done for LPG already.
2) Regional collaboration in power-sharing: Prime Minister Narendra Modi has made a strong pitch for connecting solar energy supply across borders with his vision of ‘One World, One Sun, One Grid.’ With the realisation of long-distance undersea transmission lines, regions in South East Asia and Middle East can be connected to one grid. To support this vision of the intercontinental grid, which leverages the time zone differences between various countries for the trading of power, India should take a lead by setting up a $10 billion Viability Gap Funding (VGF) for creation of intercontinental grids. This can be used to explore innovative solutions through a competitive route and make India a hub for Renewable Energy sharing in the region.
3) Boosting infrastructure financing: India has a reasonably high rate of savings at nearly 31.6 percent of the GDP. Over 60 percent of this is in household savings, while the remaining 40 percent is invested in financial assets such as currency, deposits, insurance and pension funds. India has Rs 14 lakh crore sitting idle in pension funds. We can learn from global best practices and channelise this for investment into infrastructure which has a cascading effect on the overall economy. This is also a win-win for pensioners as they can enjoy a better yield.
Canadian and Korean pension funds, for example, have been aggressively deploying capital into infrastructure projects in both domestic and international assets. This can dramatically boost the availability of capital and also provide better returns to pensioners as compared to pure debt investments. The recovery in infrastructure activity, supported by robust investments, will give the economy the much-needed impetus and help us march towards the $ 5 trillion mark.
Pratik Agarwal, Managing Director, Sterlite Power