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Power doesn't corrupt! - Views on News from Equitymaster
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  • Aug 23, 2005

    Power doesn't corrupt!

    The growth of any economy calls for almost a matching rate of growth in generation of power. However, in case of developing countries, since the growth in demand of power is generally higher than the global average, power generated needs to grow at a faster rate to achieve a certain amount of growth in the GDP.

    In case of India, as per the Ministry of Power, this ratio moved from 3 times in the first five-year plan (1951-56), peaked at 5 times during the third plan (1961-66) and now stands at nearly 1.5 times. This means that to grow the GDP at a sustainable rate of 6%, power generated in India needs to grow by around 9% (or 1.5 times of the expected GDP growth). But the correlation ends here!

    The growth in power generation in India has almost never reached these levels. For instance, since 1995, India's power generation capacity from all sources (coal, gas, hydro) has grown at a CAGR of just over 3%, from 81,000 MW to 115,000 MW at the end of 2004. This is when the power demand has consistently grown at above 6%-7% levels per annum. We have been missing our yearly targets even in the latest tenth five-year plan (2002-07). In these times, when China, with a generating capacity of 380,000 MW, is adding 30,000-40,000 MW annually, the Indian average has been miniscule at 3,500-4,000 MW.

    Considering this, the government has already revised downwards its tenth plan addition target by around 10%, from 42,000 MW to 37,000 MW. Considering the pace, we expect a review soon and believe that even this latest target will have to be revised downwards. But then, how will we meet out stated objective of providing 'power to all' by the end of 2012? Is anyone guessing?

    Finally, if one were to list the factors that have impeded India from attaining a higher growth path in the past, apart from the government's fiscal imprudence (excessive borrowings to finance spending), sluggish growth in the power sector will top the charts. While there have been initiatives in the recent past, like the ratification of the Electricity Act of 2003, the power sector anomalies will still take a long time to correct. With all sincerity, let us hope that the public-private partnership model that the government has envisaged for the faster growth of the Indian power sector achieves fruition in times to come. It is said, "Power corrupts, and absolute power corrupts absolutely." In this case, however, power will develop India, and uninterrupted power will develop Indian uninterruptedly!



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