The electricity factor in Make in India

The Prime Minister’s exhortation to Make in India deserves to be seriously looked into. The programme can only succeed if energy, most importantly, electricity is provided to manufacturers at competitive rates. In India, compared with other countries, the official price of electricity that is provided to industry is not competitive. Global comparative data shows that the official price of electricity in India is nearly double that provided by China, Vietnam, Indonesia and Myanmar, to their manufacturers.

This impacts the competitiveness of goods produced in India, especially that of MSMEs. Further, as the official power supply in India is not regular, industry is forced to use diesel generator sets which double the input cost of electricity. The high cost of electricity is amongst the biggest reasons for Indian manufacturers losing out to China.

The newly elected government will take measures to address the electricity problem by either augmenting domestic capacity or importing from neighbouring countries. In a bright, sunlit country like India, solar energy is a viable solution — as has been successfully seen in Gujarat — and needs to be replicated in the rest of the country. The other alternative, though still at an exploratory stage, is wind energy. Augmenting domestic supply could imply installing more plants — thermal, hydro and nuclear — and all this, including supplying coal, could take a few years before production at full capacity takes place. Importing electricity is a short-term measure and could translate into higher costs in addition to dependence on another country for a vital resource.

Pricing is an economic way of assigning priority and ensuring appropriate usage. If a service is not appropriately priced, its demand will be less or more than its supply, resulting in shortages or surpluses. In India, for many decades, electricity boards have been recording recurring losses, mainly because of inappropriate pricing or free distribution of electricity.

The Government should reconsider the pricing policy on electricity and adopt dynamic pricing — especially when many Indians are already paying for high cost electricity through private means, like diesel-operated generators and battery-operated invertors.

In the immediate period, some innovative and out-of-the-box solutions can be considered. The key issue is how to efficiently utilise electricity so that the nation’s industrial production is maintained. A number of short-term solutions can be considered.

First, the transmission losses, nearly one-fourth of electricity supplied, are too high to ignore and need immediate attention. Further, every household can contribute by reducing consumption of electricity. This can be achieved through more conscious use of natural resources in conducting household affairs. Illustratively, in a country with ample availability of sunlight and wind, unlike many western countries, washing machines could be judiciously used. Similarly, young Indians, contrary to the proverbial advice of burning the midnight oil, could use daylight for their work and entertainment.

Businesses can help by concentrating their operations in daylight hours. Even in advanced countries, businesses and shopping malls are generally restricted to sunlight hours. In a secular India, allowing businesses to operate during daylight hours for seven days a week should be considered without assigning any sanctity to any specific day for a general holiday.

There is also a need to revisit our time zones. India measures nearly 2,933 km from east to west between longitudes 68.7 and 97.25 east. Geographically, 15 degrees width of longitude implies a change of one hour. Therefore, sunset times are two hours apart in the eastern and western extremes of India which means that while it is still bright at 6 pm in Guhar Moti in Kutch, Gujarat, there is darkness in Kibithu in Anjaw district of Arunachal Pradesh, the way it is at 8 pm in Kutch. This implies that offices in eastern India are working for a few hours every night, consuming electricity for their office work.

The impetus to industrialisation as a result of the pro-market policies of the new government would result in higher demand for electricity for productive purposes. Generally, demand would always outmatch supply in a fast developing country especially when young India is raring to grow. Therefore, it is important to prioritise prudent use of electricity for non-productive purposes.

Just as former prime minister Lal Bahadur Shastri had asked Indians to fast one day a week to managethe food shortage in the mid-sixties, the Prime Minister can also advise Indians to conservatively use scarce electricity in the national interest.

The writer is RBI Chair Professor of Economics, IIM Bangalore. The views are personal