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Power: A step forward… - Views on News from Equitymaster
 
 
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  • Oct 17, 2002

    Power: A step forward…

    Yesterday, the Punjab government withdrew free power to farmers. The move is unprecedented and marks a positive change for the pace of power sector reforms in India. Traditionally, politicians have pampered the agriculture fraternity, eyeing them as a vote bank. So not only is agriculture income taxed less (or not taxed at all), the services provided to them like power are often free.

    The move by the Punjab government in a way underlines that power sector reforms have finally come of age in parts of India. More significantly, since this move has been initiated in the heart of the green belt, it is likely to send out a strong pro-reform signal to other states as well.

    It is a well-known fact that power reforms faced hurdles owing to lack of private investment in the sector. This was because the financial state of the state electricity boards was in a mess. Populist measures, lack of proper metering and power theft, meant no money for the SEBs to pay for power purchased from independent producers. With politics gaining edge over financial sense, private investors stayed away.

    Increasingly, it became clear that for India to attain an 8% to 10% GDP growth, infrastructure development in terms of building roads and highways and power reforms were the key. Finally, the government announced the ‘Golden quadrilateral’ and the ‘North-South’ - ‘East-West’ highway projects. For the power sector, the government decided to write off over Rs 260 bn of accumulated losses with SEBs on the condition that the states sign an agreement called APDP (accelerated power development program) with the centre. Under this, each SEB gives an undertaking to improve its health in a time bound manner, through corporatisation and better distribution network.

    Not surprisingly, the Punjab state government was not a willing participant to do away with free power, but was arm-twisted by the SEB to either pay up for the free power being supplied or stop free power. The state government gave in after a dogged fight. The entire episode signals further roadblocks that power sector reforms are likely to face going forward. Already, we have the ‘Cauvery dispute’ wherein, an elected state government refused to obey orders of the Supreme Court owing to political considerations. And who is to say that a similar doggedness will not mar the pace of power reforms going forward.

    But on a brighter note, the Punjab government’s move is a sign of progress, for it is a move that would have been considered political ‘hara-kiri’ even a few years back. A precedent has been set.

     

     

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