India is plunging head-long into an energy crisis that may cripple the country's burgeoning economy if the government does not act fast. The opening up of the energy sector to private investors as part of the Indian economic reform plan may well be the energy boost this industry desperately needs.
Village girl reading by kerosene lamp
100% electrification but no power!
A recent report by the World Bank has warned India that unless it introduces reforms in its power sector it could lose millions of dollars in revenue.
Over in Sri Lanka, India's island neighbor, this cautionary tale is a reality. One bad monsoon and the nation's hydro-power reservoirs have dropped, unable to meet the demand for electricity. Business and industry, faced with daily power cuts, are losing an estimated 18 million dollars a day.
Economic reforms, introduced in 1991, are slowly transforming India from an economic laggard into an important emerging market. But politics, a labyrinthine bureaucracy and corruption have turned many potential investors away.
Those who took the plunge in the power sector, namely eight so called "fast-track" power projects have yet to generate a single megawatt of electricity.
These projects, one of which is the controversial Enron-led Dabhol power project, were granted negotiated deals in an effort to speed up the process. But in India's arcane bureaucracy every project requires dozens of approvals from various state and central government departments.
Part of the problem lies with the state-run electricity boards, which are losing an estimated 20 billion dollars (Rs.7,000 crore) annually. In 1994, the World Bank slashed $750 million in loans to the power sector because the states refused to stop giving away electricity, mostly to politically powerful farmers. A lack of efficient monitoring means that a huge amount of electricity is stolen.
The new United Front coalition government, led by reform-minded Prime Minister H D Deve Gowda, has assured private companies that efforts will be made to simplify policies for investing in energy and other parts of the cash-starved infrastructure.
However, Mr. Gowda has to grapple with the protectionist tendencies of his socialist and communist partners who are reluctant to privatize state-owned enterprises.
Meanwhile, the World Bank is back on the scene with a plan to
restructure the state power sector by dividing up the state electricity boards into separate companies for generating, transmitting and distributing electricity.
With private power projects unlikely to be operational for at least another two years, efforts to improve the efficiency of the existing plants, seem to be the only solution to India's impending black-out.
Jennifer Morrow is a Canadian radio journalist based in New Delhi. She edits a publication on social and current affairs in South Asia, and is a freelance correspondent for the Voice of America.
She is a member of the Indian Economy Overview editorial panel.