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Accountability for regulators

Investment is a key growth constraint of the Indian power sector. However,
going by the response to Coal India's IPO, the market seems to be flushed with
funds. It is not clear why financial closure of power projects remains such
a big challenge. The answer probably lies in the framework conditions that govern
the sector.

Despite nearly two decades of experimentation, we have not been able to decide
the shape and form of power distribution reforms and also whether these are
essential to ensuring the flow of revenues needed to make investments viable
in this sector. The few experiments that were undertaken to privatise distribution
remain inconclusive on performance, with the distribution utilities in Delhi
seemingly under tremendous financial stress.

Delivering the Khazanah Global Lecture in Malaysia on October 27, Prime Minister
Manmohan Singh identified rapid economic growth and equity-carrying the large
number of poor in the country on the path to prosperity-as the main pillars
of India's development . He also emphasised on balancing economic growth with
long-term environmental sustainability given the continuing dependence of a
large percentage of India's population on the agricultural sector and, therefore,
the need to preserve the ecosystem services that they are so dependent upon.
His elucidation of India's approach to development reinforced once again India's
commitment to equitable development and environmental sustainability.

The same clarity of vision needs to be carried forward in areas of concern that
the Prime Minister has highlighted, including the state of infrastructure. At
a very conservative level, India's infrastructure needs will double from current
levels in the next ten years and further double in less than a decade after
that. Looking at the power sector explicitly, both peak and energy shortages
are estimated to be above 10%--by comparison Malaysia has a reserve margin of
40%. And in the year 2009-10, India added a mere 9,585 MW of capacity against
a target of 14,507 MW.

A key initiative in addressing the framework conditions was the effort to distance
the electricity business from political interference by setting up independent
electricity regulatory commissions at the central and state levels. Unfortunately,
despite repeated appeals to the powers-that-be in the government, the desperate
need to enhance the credibility of these newly founded institutions has not
been taken care of. Many well-wishers have flagged the need for reviewing the
process of selection of regulators and strengthening the capacity of commissions.


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