(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia May 19 Narendra Modi's
crushing election win has given rise to hopes for an economic
revival in India, but much will depend on whether he can
replicate the electricity success of his home state.
India's financial markets have been buoyed by Modi's
victory, betting that the Hindu nationalist politician can work
the same economic wonders for the whole country that he did
while running the western state of Gujarat for 13 years.
The alliance led by Modi's Bharatiya Janata Party (BJP) won
336 of the 543 seats in India's lower house of parliament when
election results were announced last week, giving India a
majority government for the first time in a quarter of a
While Modi's authority will be bolstered by the massive win
and his legislative programme will be easier to implement given
he doesn't need to negotiate with coalition partners, the scale
of the challenge facing him is enormous.
India is structurally short of electricity, and it's hard to
see how the economy can be ramped up significantly, especially
in power-hungry sectors such as manufacturing, without the
provision of reliable power at prices high enough to ensure
sustainable supply, but not so high as to choke growth.
One of Modi's key accomplishments in Gujurat is said to be
his reform of the power sector, making the state the only one
with a consistent power surplus.
What Modi's government did in Gujarat was less to do with
building new power plants and more to do with reforming how
electricity was distributed and paid for.
His government re-negotiated purchase agreements with
private power companies, set up a police unit to stop thieving
of electricity and ended unmetered supplies to rural areas.
What Modi didn't do was have the state build more power
plants, rather its share of generation has gone down while that
of the private sector has gone up.
Modi's accomplishment in Gujarat was to improve the
reliability of supply at the cost of higher prices, a bargain
that has apparently been successful.
Whether this formula can be replicated across India is very
much open to debate, given that the central government has
limited authority over state electricity boards.
Politicians at state level have for years used power as a
populist football, regulating for cheap electricity that has
meant losses for both private and public generators and
A recent example of the chaos afflicting India's electricity
sector is the Supreme Court's intervention to order state-run
power producer NTPC Ltd to supply distribution
companies in the capital New Delhi in order to prevent
The distributors claim that low tariffs mean they can't
afford to pay the generator, while the government of Delhi has
threatened to cancel the distributors' licences and examine
In some ways it doesn't matter who is right or wrong in the
Delhi power dispute, what matters is that any company
contemplating investing in the region would have serious
concerns about the reliability of electricity supply.
Sorting out the disconnect between retail prices and the
actual cost of producing and distributing electricity is also
just the tip of the iceberg in ensuring sufficient power for
RELIANCE ON COAL
India is reliant on coal for electricity, with the fuel
providing about 70 percent of total generation.
Given its cost advantage over other fossil fuels such as
natural gas and its abundance, it makes sense that India is
looking to coal to power its future.
The defeated government's 12th five-year plan anticipated
that about 76 gigawatts (GW) of new power will be added by
2016-17, with about 63 GW being coal-fired.
Assuming this capacity is actually added, it would take
total coal-fired generation to around 175 GW, which would
require about 842 million tonnes of coal a year.
In addition to coal for power generation, India has
optimistic plans to expand steel output, which could potentially
use as much as 300 million tonnes of coking coal by 2016-17,
taking the total coal need to around 1.1 billion tonnes.
Even if these demand forecasts prove too optimistic, the
problem is that there is little chance that India could get
close to meeting its coal requirement from domestic resources,
meaning imports will have to increase, putting pressure on the
current account deficit.
Domestic coal output was about 587 million tonnes for the
fiscal year ended in March, and imports were about 158.8 million
Coal India, the state-controlled behemoth that produces
about 80 percent of the nation's output, says it can increase
output by 300 million tonnes a year, if Indian Railways moved
faster in building new tracks.
Given Coal India has consistently disappointed on output
growth, its claims have to be treated with caution, but they do
highlight the main issue for coal availability in India.
There is ample domestic coal, but it can't be moved around
the country due to major bottlenecks on the rail system.
Building new mines and railways requires investors jump
through multiple bureaucratic hoops, and it's in this area that
Modi's new government may be able to speed things up.
But in the short term it appears likely that coal imports
will have to rise if the new government wants to improve the
availability and reliability of electricity.
Power prices to consumers will also have increase in order
to pay for imported coal and improvements to distribution
(Editing by Richard Pullin)