More Power to India ― The Challenge of Electricity Distribution

This World Bank review of India’s power sector assesses state-wise progress in implementing the government’s reform agenda two decades after the liberalization of India’s economy and a decade after the passage of the forward-looking Electricity Act of 2003 (EA). It examines the performance of the sector along the following dimensions, drawing on in-depth background papers—achievements in access, the financial and operational performance of utilities, governance, private participation, and the coverage and targeting of domestic user subsidies. Despite considerable progress in implementing the EA mandates and associated policies over the past decade, the report shows that sector finances remain weak. After-tax losses in 2011 were equivalent to nearly 17 percent of India’s gross fiscal deficit and around 0.7 percent of GDP; they were concentrated in the distribution segment. Twenty years after the initiation of reforms, an inefficient, loss-making power sector and inadequate and unreliable power supply are major constraints to India’s growth, inclusion, job creation, and aspirations for middle-income country status.This report shows that achieving sector outcomes is linked closely to the degree to which each state has implemented the EA. Key reforms mandated by the EA have still not been implemented in full, with progress in promoting competition lagging furthest behind. Further, multiple institutions with diffuse accountability have undermined the sector’s commercial orientation: state governments are a major presence with a generally detrimental impact on utility operations; the regulatory environment has not sufficiently pushed utilities to improve performance; and, the flow of liquidity from lenders has limited the pressure on discoms to improve performance and on state governments to allow tariff increases. An important contribution of this report is its forthright recognition that poor power sector performance in India is rooted in distribution inefficiencies and limited accountability. This leads the authors to conclude with recommendations directed at these specific aspects in order to improve service delivery and other metrics of sector performance, put the sector on a financially sustainable path, and help ensure that power is no longer a bottleneck for growth.