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India em'powered'? - Views on News from Equitymaster
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  • Nov 26, 2007

    India em'powered'?

    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, the ratio of required growth in power generation to growth in GDP 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 8%, power generated in India needs to grow by around 12% (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 around 4%, from 81,000 MW to 130,000 MW currently. This is when the power demand has consistently grown at above 7% to 8% levels per annum. We have been missing our yearly targets - even in the latest completed tenth five-year plan (2002-07), the actual generation capacity addition was less than 60% of the target.

    In these times, when China is adding around 90,000 MW (Source: Financial Times) of capacity annually (read again!), the Indian average seems peanuts and out of sync with the real growth in demand. What is more, China is also expected to increase its power transmission route (in excess of 220-kV) by 190,000 km to 441,000 km during the period 2006 to 2010. Compare this with India's target of adding a network of just around 10,000 km of above 220-kV lines during the eleventh five year plan (2007-12)! So much for the growth story that India is expected to become.

    Further, considering the pace of project allocation and execution, we could hear a downward revision of the eleventh plan targets anytime in the near future. But then, how will we meet out stated objective of providing 'power to all' by the end of 2012? Is anyone guessing?

    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 India's case, however, power will develop, and uninterrupted power will develop India uninterruptedly!



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