• APRIL 4, 2007

But where's the power?

In all talks of the 8.5% plus GDP growth that India 'can' achieve over the next few years, one tends to forget that we still lack the most basic ingredient for sustaining this kind of economic momentum - power, or electricity! Out of the 'bijli', 'jal' and 'pyaaz' (instead of the customary 'roti', 'kapda' and 'makaan' of Indira Gandhi) slogan that we Indians have been chanting for some years now, the first has probably been the most required and the most neglected by the powers that be!

Even the spate of reforms that have touched most of the other sections of the economy, have not borne much fruit for the power sector in India, which is still characterised by 'load-shedding', 'deficit', 'T&D losses' and 'thefts'. Ask anyone residing 30 kms away from south of Mumbai and you will have the experience re-told with utmost hopelessness.

Mumbai, which boasts of being the 'business capital' of India and the most vibrant city in the country's largest state of Maharashtra, has been forced to suffer the shortsightedness of policymakers, in terms of poor roads, pathetic public services and 'bijli gul'!

Well, the state of affairs is not rosy in the rest of Maharashtra as well, with the state witnessing a peak power shortage of 27% (demand exceeding supply by 27% during peak hours). (Click here for our view on power stocks) As a matter if fact, Maharashtra is the largest state in India in terms gross domestic product (GDP) and contributes around 15% to the country's total GDP (Source: Central Statistical Organisation).

The situation becomes even worse if one were to consider the 'top' five states in terms of peak hour deficit - Gujarat, Punjab, Maharashtra, Madhya Pradesh and Uttar Pradesh. Gujarat, for instance, suffers from a deficit of over 30%. Incidentally, these five states form around 40% of India's GDP. That's India poised for you!

The capacity addition during the tenth five year plan (2002-07), which was pruned to less than 32,000 MW (from the earlier target of 41,000 MW) is still expected to be missed as the country shall end the plan period with an additional capacity of less than 20,000 MW. As reported by the Ministry of Power, this shortfall has been largely due to lower capacity addition from the private sector mainly on account of financial unviability of the state electricity boards (SEBs).

The financial position of the SEBs is a matter of grave concern. As reported in the recent Economic Survey of 2006-07, the performance of the SEBs has deteriorated further, with their rate of return declining to -27.4% in 2006-07 (revised estimates) from -24.8% in 2005-06. We believe that the large investment flows as envisaged for the growth of the power sector in India may not materialise unless the important issue of commercial viability of SEBs is properly addressed and re-structuring/unbundling of SEBs initiated by several states, is expedited.

Plainly speaking, the power situation in the country is worrying, considering the huge requirements of the economy. As a matter of fact, in India's case, the elasticity of power generated to GDP growth should usually be 1.5 times i.e., to achieve economic growth of 8% per annum, power generation should grow at 12% per annum, which is not the case. (Click here for our recommendations on power stocks)

So, where will be get the power to light up all those houses, malls, airports and IT parks (forget the SEZs for the time being!) built across the length and breadth of the country?

This is what would have flowed from Robert Frost's pen had he been living in the India of today!

"The woods are lovely, 'dark' and deep,
But I have promises to keep,
And miles to go before I get some sleep (where's the 'power' to 'power' my fan, A/C at night?)
And miles to go before I get some sleep!"

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