India has been following a policy focused on inclusion rather than growth resulting in growth becoming even less inclusive, according to Kirit S Parikh, energy policy expert and former member of Economic Advisory Policy (EAC) to the Prime Minister of India.
Delivering the keynote address at VCCircle Limited Partners Summit in Mumbai on Wednesday, he added that the emerging political challenges will force the ruling government to step up reforms and set the stage for a turnaround of business sentiments.
“I don’t know about dream budget, but we will see a good budget,” he said.
Parikh, who is currently chairman of Delhi-based think-tank Integrated Research and Action for Development (IRADe), said the emergence of Gujarat Chief Minister and BJP leader Narendra Modi to the national level ahead of a general elections in the country will spur the ruling UPA into action.
“Now economic performance is their only hope for 2014,” he said.
On issues facing economic growth Parikh said, India’s power deficit problems could be addressed only through denationalisation of coal block and revision of tariffs by State Electricity Regulatory Commissions (SERCs).
The challenge plaguing the country in achieving full energy independence, he said is the policy paralysis by the state governments.
Writing-off bank loans given to the State Electricity Boards (SEB), which has been mooted to the Planning Commission, is not the way forward to address the continuing shortage in most states, but through hiking the tariffs, he added.
Last September, to push new reforms in the power sector, the Centre approved restructuring of Rs 1.9 lakh crore debt of SEBs in a move to turnaround the near-bankrupt power distribution companies.
However, the validity date has now been extended till March 31, 2013.
He said that through Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), one of the flagship programmes of Ministry of Power, around 92 per cent of the villages have been electrified. However, a village is considered as electrified even if 10 per cent of it gets electricity.
“Within next few years, almost total country would be electrified and people can use it for more productive purposes, but we need to increase the quality of power,” he added.
“`We need to denationalise coal blocks, and nobody is talking about it.”
The positive aspect among all, he said, is that the losses arising out of theft, transmission, distribution and inefficiencies have come down from 40 per cent to 24 per cent. Ideally, it should be brought down to less than 15 per cent, he said.
The banking sector’s short term exposure to distribution companies (Discoms) is quite substantial and estimated at 3-3.6 per cent of bank credit and around half of total power sector credit, according to rating agency ICRA.
The banks have been reporting huge provisioning losses due to their exposure to Discoms.
Till March 31, 2011, debt-ridden power Discoms have accumulated huge book losses with approximately 70 per cent of these losses accounted by Discoms in six states — Rajasthan, Tamil Nadu, Uttar Pradesh, Haryana, Punjab and Madhya Pradesh.
However, timely implementation and political will of the State governments would be a key challenge and the Congress government has to fight its next election with its economic achievement, Parikh said.
(Edited by Prem Udayabhanu)