Indian power sector reform for sustainable development: the public benefits imperative

Abstract

The crises of utilities in developing countries led to a World Bank diagnosis of their problems and to a prescription of remedies for the situation. The resulting approach has been assessed with a case-study of the power sector in Karnataka carried out by the International Energy Initiative. This bottom-up approach has yielded remedies that do overlap with the top-down World Bank approach as far as liberation from government management control, corporatisation and the establishment of an electricity regulatory body are concerned. However, the bottom-up approach does not lead to other World Bank solutions such as unbundling of generation, transmission and distribution, removal of all subsidies and cross-subsidies, and privatisation, which appear to follow, not from ground realities, but from global trends of reform/restructuring. It appears that the reform process in the industrialised countries has been driven primarily by technical developments, rather than by the financial crises that are the justification for reform in the developing countries. Despite this, there is an epidemic of reform in India. It appears that a bootstrap operation (= improving by one's own efforts) coupled with some elements of reform can rejuvenate the utilities. What may not result from this financial rejuvenation are several crucial public benefits - access, self-reliance/empowerment, environmental soundness, research and development and sustainability over the long term. To achieve these benefits, one has to go beyond economic growth and advance sustainable development. This larger goal requires that the invisible hand of the market has to be assisted by the visible hand of regulations and the intervention of the state. Privatisation against this background may not be the magic wand that it is claimed to be.