Confederation of Indian Industry (CII) said a holistic reform of the power sector is imperative to put the power sector on a strong growth path. The problems in the power sector are multifarious, relating to fuel shortages, lack of adequate finance, poor financial health of distribution utilities, absence of cost-reflective tariffs and peaking power shortages. In addition, land acquisition and environmental clearances too discourage investments.
CII director general Chandrajit Banerjee in its publication titled Policy Watch said fuel availability has emerged as a severe bottleneck for power generators. Large coal reserves notwithstanding, coal production in the country at 5% growth has lagged power sector growth of 10-15% in the last Five-Year Plan leading to acute coal shortages. The availability of natural gas is equally uncertain, as it competes with sectors such as fertilisers. Moreover, liquefied natural gas (LNG) is thrice as expensive.
Second, with the funding gap in the current plan period alone estimated at Rs 4 lakh crore financing has become constrained for the sector. While banks are reaching their power sector exposure limits, foreign investors are deterred by the complexities of the power sector despite permission to invest 100%.
Third, the annual losses of power utilities at Rs 70,000 crore and as high as 1% of India’s GDP is probably the most critical challenge faced by the sector. The losses on account of outstanding loans, low tariffs, rising power purchase costs and subsidising power are also threatening the viability of the entire sector.
Fourth, the question of tariffs has to be revisited as these have risen by only 3% with many states not changing tariffs for 5-6 years, and a few for as long as a decade, for political expediency. Meanwhile,on an average, CII said costs have risen by 8%.
Finally, peaking power deficits at around 10% are expected to increase in the next few years. "These issues need to be addressed and we are currently in dialogue with all the policy stakeholders to discuss and come out with a detailed road map for the sector. It is also heartening to know that recognizing the gravity of the situation, the government has taken some steps to alleviate the crisis in the sector. However, a holistic reform of the sector is imperative to put the sector on a strong growth path," Banerjee concluded.