More Power to India : The Challenge of Electricity Distribution

Abstract

This report assesses progress in implementing the government of India's power sector reform agenda and examines the performance of the sector along different dimensions. India has emphasized that an efficient, resilient, and financially robust power sector is essential for growth and poverty reduction. Almost all investment-climate surveys point to poor availability and quality of power as critical constraints to commercial and manufacturing activity and national competitiveness. Further, more than 300 million Indians live without electricity, and those with power must cope with unreliable supply, pointing to huge unsatisfied demand and restricted consumer welfare. This report reviews the evolution of the Indian power sector since the landmark Electricity Act of 2003, with a focus on distribution as key to the performance and viability of the sector. While all three segments of the power sector (generation, transmission, and distribution) are important, revenues originate with the customer at distribution, so subpar performance there hurts the entire value chain. Persistent operational and financial shortcomings in distribution have repeatedly led to central bailouts for the whole sector, even though power is a concurrent subject under the Indian constitution and distribution is almost entirely under state control. Ominously, the recent sharp increase in private investment and market borrowing means power sector difficulties are more likely to spill over to lenders and affect the broader financial sector. Government-initiated reform efforts first focused on the generation and transmission segments, reflecting the urgent need for adding capacity and evacuating it and the complexity of issues to be addressed at the consumer interface. Consequently, distribution improvements have lagged, but it is now clear that they need to be a priority. This report thus analyzes the multiple sources of weakness in distribution and identifies the key challenges to improving performance in the short and medium term. The report is aimed at policy makers and government officials, academics, and civil society in the fields of energy, governance, and infrastructure economics and finance, as well as private investors and lenders in the energy arena.