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Neganomics
The turn of the century saw the ushering in of intensive reforms in the Indian Power Sector. The developing nature of the Indian economy that saw the Information Technology and services sectors booming in the recent years precipitated the need for a corresponding increase in infrastructure facilities.
The growth rate of demand for power in the developing countries is normally higher than that of the GDP (Gross Domestic Product). In India the elasticity ratio peaked at about 5.11 during the Third plan and was at about 1,5 in the 1990s. Thus, implying that an annual GDP growth rate of about 7% would necessitate a minimum 10% growth rate in the Indian power sector. (Ministry of Power, 2001)
Due to this realization, the Indian power sector that has traditionally been supported by budgetary finance and external borrowings felt the urgent need to revamp itself to meet the future growth expectations.
A series of power sector reforms and the search for alternate financing mechanisms for the Indian power sector were initiated to meet the targets unmet due to limited budgetary support and severe borrowing constraints.
The Electricity Regulatory Commissions Act enacted in 1998 was aimed at providing for the establishment of the Central And State Electricity Regulatory Commission, rationalization of the electricity tariffs, transparent subsidy policies and other related matters. States such as Orissa, Haryana and Andhra Pradesh have also enacted their state reform bills leading to the unbundling of the SEBs and future privatization of the state power sectors.
However the darkness which enveloped northern India on January 02, 2001, as a result of the failure of the Northern power grid and the precipitating Dabhol Power Company crisis are recent indicators of the inadequacy of the reforms initiated or the lack of alternate solutions for the Indian power sector.
The Orissa experience and other attempts at privatization such as DVB and Haryana have proven reform to be a long and tedious road not totally devoid of risks and challenges.
Simultaneously several IPPs around the country face the risk of being unable to gain financial closure due to lack of adequate financing mechanisms.
With this prelude, one realizes the urgent need to develop innovative solutions for the indian power sector that
- Generate additional growth and revenue paths
- Restore a "feel good" factor in the power sector
- Dynamically different and innovative from the low yielding traditional supply side solutions
- Can be implemented within the current policy, legal and regulatory framework
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