Making India’s Electricity Utilities Viable Enterprises: Economics, Institutions, and the Social Contract

Content from the Brookings Institution India Center is now archived. After seven years of an impactful partnership, as of September 11, 2020, Brookings India is now the Centre for Social and Economic Progress, an independent public policy institution based in India.

The Indian electricity system is struggling. Worldwide challenges of supply security, fuel choice, environmental impacts (now adding carbon and climate change), and sustainable business models are present, but the last one is where India is furthest behind.  We have a muddled system with state and private participation that satisfies neither the social contract nor investor needs.  Fixing the system will take operational improvements, pricing changes, and even a broad transformation of utilities towards enterprises focused on service delivery.

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  • Utilities must be enabled to become viable enterprises, which side-steps the question of public versus private
  • There is a shortfall of power that manifests as load-shedding, which impacts most users, especially during peak periods
  • “Electrification” must evolve from just a wire to the home (or village!) to actual service delivery, without load-shedding, especially during the evening peak period
  • Adding supply is easier said than done, due to overall unviable pricing in the system.  Rationalization of pricing is more than a phase-out of cross-subsidies or higher prices.  One also needs better price signaling for the marginal costs of any input or output of power, with time-of-day pricing as well
  • Holistic planning for electricity involves a societal cost benefit analysis, instead of a narrower utility-centric return on investment.  For example, this means treating load-shedding as having a cost
  • Ultimately, it’s difficult to fix just a part of the problem, without a broader transformation of all present systems. For example, pricing, subsidies, technology, renewables, etc. are all intertwined