Energy pricing a drag; power looks up

Doing away with subsidies, correcting policy imperfections

The Economic Survey, released today in Parliament, has warned that the ongoing issues in the energy sector, particularly related to pricing, may pull down growth of the overall infrastructure sector.

It recommended doing away with subsidies through import parity in domestic fuel prices and correcting policy imperfections for realising the targeted $1-trillion infrastructure investment in the current Five-Year Plan.

The Survey says a majority of ongoing projects costing Rs 150 crore and above are facing delays in the power, coal and petroleum sectors. "The actions needed to remove impediments for infrastructure projects, especially in the area of energy, include ensuring fuel supply to power stations, financial restructuring of distribution companies and clarity on the New Exploration and Licensing Policy," the Survey said.

While India's overall energy production will increase to 670 million tonnes of oil equivalent (MTOE) by 2017, it will fall short of the demand by at least 29 per cent - 268 MTOE. This will have to be met through imports. "Aligning domestic energy prices with global prices, especially when large imports are involved, may be an ideal option as misalignment could pose both macro and micro-economic problems," the Survey, advocating "rational" energy prices, said.

The recommendation, hinting at further fuel price raise, comes at a time when much of the "misalignment" in global and domestic fuel prices has already been bridged. The switchover to a gross calorific value-based system increased coal prices last year. In the petroleum sector, the administered pricing mechanism was dismantled in 2002, followed by complete deregulation of petrol prices in 2010. Last month, the government allowed gradual price rise for reducing under-recoveries in diesel, too.

The Survey revealed fresh data pointing at a sharp recovery in the power sector's performance as coal production recovered to a growth of six per cent in April-December 2012 from a decline of three per cent in the same period last year. Thermal power generation increased 8.5 per cent to 562 billion units between April and December 2012, primarily on the back of a massive 14 per cent jump in coal-based generation. However, generation gas-based power declined 25 per cent and hydro power declined 14 per cent during the period.

The rate of growth of bank credit for the power sector, which alone accounts for over a half of the total infrastructure sector's credit, increased from 14 per cent in the first quarter this financial year to 22 per cent in the third quarter ended December. Credit flow for the overall infrastructure sector, however, showed a marginal improvement from 13.5 per cent in the first quarter to 16.5 per cent in the third quarter, as the telecom sector continued with a sixth consecutive decline.