India Definitely Not Shining

Last week’s blackouts illuminate three fiascoes holding India back

The massive, cascading power outages that left the northern half of India in the dark for two days last week bring to mind a telling juxtaposition of events in mid-1998.  India had just concluded a momentous series of nuclear weapon tests, code-named “Operation Shakti” in reference to the Hindu concept of divine power.  The action unambiguously propelled the country into the small fraternity of nations bearing nuclear arms, causing Prime Minister A.B. Vajpayee to boast “We have a big bomb now.”  Yet at the same time, New Delhi was in the grip of sweltering summer heat and rolling blackouts.  At his wit’s end, the municipal official in charge of electricity declared the power situation to be beyond his control and in the hands of God.  He too, it seemed, was looking for some Shakti.

Fourteen years on, the continued development of its strategic arsenal is a source of national pride and part of India’s resume as a great power in the making.  In recent months, the country has tested a long-range nuclear missile capable of striking targets deep within China and is reportedly on the verge of producing a submarine-launched ballistic missile – feats that only a very elite club of countries can replicate.

Yet the enduring inability to provide adequate amounts of electricity to its growing economy is a constant source of embarrassment, negating whatever reputational gains the nuclear weapons program has achieved.  India may not be much of a factor at the Olympic Games in London, but it has now set a world-class record for the largest blackouts in human history – an exploit that is likely to stand for quite some time. The Economic Times, a leading business daily, succinctly summed things up with a front-page article titled “Superpower India: R.I.P.” while NDTV, a major news channel, broadcast an hour-long program called “Powerless Superpower: Are India’s superpower dreams a joke?”  Compounding the chagrin is that the country was forced to turn to tiny Bhutan, essentially an Indian protectorate, for emergency allotments of power.  Perhaps the only consolation – and this is not saying much at all– is that Pakistan’s power situation is no better off.

The media universally reported that the outages plunged about 700 million people – more than half of the population – into darkness.  Yet the truth is that for a large fraction of that number the blackouts were hardly noticed, since their villages are not connected to the power grid at all or, if they are, service is so intermittent and unreliable.  Still others were unaffected only because they know that frequent outages are a fact of life in India and had purchased backup diesel generators.  As The Onion, the satirical newspaper, put it, “300 Million Without Electricity In India After Restoration of Power Grid.”

The blackouts illuminated three colossal fiascos holding the country’s great power ambitions in check:

• Its ramshackle system of infrastructure
• The dereliction of state-run institutions
• The deficit of political accountability

Infrastructure Deficiencies

A few years ago, a government minister acknowledged that India is bedeviled by the “world’s biggest infrastructure deficit.”  According to the World Economic Forum’s 2011-2012 Global Competitiveness Index, India ranks 89^th out of 139 countries in terms of the quality of its overall infrastructure.  Equally dismal are India’s scores on specific criteria: Quality of roads (85^th rank); Port infrastructure (82^nd); Air transportation infrastructure (67^th); and quality of electricity supply (112^th).  India constantly benchmarks its progress vis-à-vis China, and here the scores are similarly telling – especially in electrical infrastructure where People’s Republic is ranked 49^th.   Indeed, China manages to install six times more generating capacity each year than India.

In no other sector is India’s infrastructure deficit as glaring as in power generation.  Burgeoning demand constantly outstrips available supply by as much as 10 percent.  The Central Electricity Authority estimates that the shortfall reduces Gross Domestic Product by about 1.2 percentage points annually, and the World Bank reckons that it poses the single most important constraint on economic growth.  The International Energy Agency estimates that India will need to invest a staggering $1.6 trillion in electricity infrastructure over the next two decades or so.  But it is unclear, to say the least, how the country can come up with the funds given the serious fiscal problems confronting the central and state governments, the lack of a proper corporate bond market, and foreign wariness in investing in infrastructure projects.

The overburdened power system is emblematic of the country’s other critical infrastructure challenges, the scope of which was spelled out in a McKinsey Global Institute report released two years ago.  It argues that the country will undergo an urbanization process of seismic proportions over the next two decades, with city populations nearly doubling to 600 million people by 2030.  By this date, India will have six megacities with populations of 10 million or more, at least two of which – Mumbai and New Delhi – will be among the five largest cities in the world.  To prepare for this demographic transformation, India must invest $1.2 trillion in core urban infrastructure over the next 20 years – an eight-fold increase from current spending levels – as well as an additional $1 trillion on operating expenditures.

The prospect of rapid urbanization imposes an unbelievably daunting challenge.  In transportation alone, the country will need to build 350-400 kilometers of new subway lines annually (more than 20 times the subway capacity created over the last decade) and between 19,000 and 25,000 kilometers of road lanes every year (nearly equivalent to the amount India has added over the last ten years).  India will also need 700-900 million square meters of new residential and commercial space a year—equivalent to creating more than two Mumbais annually.  If the country fails to address these challenges, the McKinsey report envisions a dystopian future for India’s cities.

Needless to say, the present record of the Indian government furnishes little reason for believing it’s up to the challenges.

Failure of the Indian State

In fact, far from committing sins of omission, New Delhi is actively contributing to crippling power shortages.  Much of the system of electricity production is still in government hands, starting with the lumbering coal mining company, Coal India, which is supposed to provide the fuel for much of the country’s electricity generation.  India possesses vast domestic coal reserves but constantly struggles to supply enough of the stuff to power plants, which in turn are forced to rely more and more on costly imports from Indonesia, Australia and elsewhere.  Coal India is legendary for its inefficiency, so much so that at the end of this March, 32 power plants had coal stocks described as “critical” by the government—less than seven days worth—and two dozen plants were running at less than 60% capacity.

The leading private players in the electricity sector huddled earlier this year with Prime Minister Manmohan Singh to complain about the supply problems.  Afterwards, Coal India’s remedy to alleviate the delivery constraints was to refuse to supply newly-constructed power plants.

Transmission and distribution companies, many of them government controlled, have racked up huge financial losses and are unable to invest in modernization.  These entities are forced to keep tariffs absurdly low by a politically-imposed system of subsidies and price caps inspired by economic populism rather than rational business plans.  According to the Economist magazine, losses at state utilities amounted to $11 billion in the 2009-2010 fiscal year.

After the blackouts, Mr. Singh’s government announced that coal output this year will be increased almost nine percent over last year’s total.  But Coal India has routinely fallen short of supply aims and New Delhi has given no real indication that this year will be any different.  Indeed, energy production targets have never been met in any of the five-year economic plans New Delhi has announced since 1951.  Only 64 percent of the new generation capacity called for in the 2007-2012 plan was actually brought on line.  Seven years ago, Mr. Singh launched a plan for full rural electrification by 2012.  As hundreds of millions of Indians can attest, this goal remains far out of reach.  (For an August 2009 report by McKinsey & Company on the country’s problems in implementing infrastructure projects, see here.)

Accountability Deficit

Finally, last week’s outages highlighted just how adept the political system is at shirking responsibility.  With its customary sense of maladroit timing, the Singh government announced during the blackouts that Sushil Kumar Shinde, the minister in charge of the electricity portfolio, was being promoted to home minister, a prestigious Cabinet post that oversees the nation’s law enforcement and internal security.*  Shinde also is reportedly being considered as head of the government faction in the parliament’s lower house.  The decision is reminiscent of the administration’s blundering late last year when it promulgated important retail-sector reforms without apparently bothering to consult its own coalition partners.  One respected commentator, Pratap Bhanu Mehta, castigated Shinde’s elevation as a sign of “how self-obsessed and out of touch the government has become.”

Further rubbing salt into the public’s wounds, Mr. Shinde quickly pronounced himself worthy of the promotion, saying that his stint as power minister was “excellent” – a declaration at some odds with more objective appraisals.  Not to be outdone in the chutzpah department, the chairman of the state-run Power Grid Corporation sought to reassure the public by saying that “The country is in safe hands” because blackouts “are not something new to us.”  Of course, the long-suffering populace would surely respond that the chairman should actually be concerned by routineness of the outages.

Incredibly, the Singh government managed to send yet another terrible signal: Mr. Shinde’s former responsibilities are to be looked after by a Cabinet official who already has his hands full being the corporate affairs minister.  As Mehta notes, entrusting the power portfolio to a part-time minister “displays the same casualness that is corroding the state.”

Anticipation has been growing in recent weeks that Mr. Singh may be close to pulling the trigger on much-needed economic reforms, perhaps as soon as next month following parliament’s adjournment.  But if his immediate response to the blackouts is any indication, it’s business as usual in New Delhi.

*Disastrous service as power minister isn’t a disqualification for political advancement in Pakistan either.  Raja Pervez Ashraf’s oversight of the power portfolio is widely regarded as dismal, if not scandalous.  In fact, the Supreme Court effectively turfed him out of office when it found that a program he oversaw to spur private generation of electricity was riddled with graft.  Yet this record did not prevent him from being tapped as prime minister two months ago.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to join me on Facebook and follow me on Twitter.