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CII Policy watch – Energy
14 Jan 2015
By Chandrajit Banerjee, Director General, Confederation of Indian Industry
The NDA Government has taken several major strides in the past few months that have defined change, boosting up investor confidence even as Prime Minister Narendra Modi carried the India story to new heights with every new foreign visit.
One sector that has dominated every bilateral and multilateral dialogue is energy and India’s initiatives in sustainable energy.
A similar story has been playing out domestically too as the Government has unleashed some of the boldest reforms in this crucial sector- from opening up the coal sector to deregulating diesel prices, to phasing out subsidies in lpg and mainstreaming renewable energy.
The complexities in an energy starved country like India have always posed one of the biggest challenges for any Government. On the one hand is the growing demand of an economy raring to go, on the other is the irony that large pockets of the country still remain in darkness. The per capita consumption of electricity stands at a paltry 917.2 kWh, as against 3298 kWh in China and 12346 kWh in the US.
Add to that, the lack of abundant easy natural resources like crude oil and gas. Coal is available but large parts of the country remain unmined. The Government has begun well adopting access, availability and affordability as the three drivers to ensure ustainable energy for all in the next five years.
The biggest reform by this Government has come in the form of energy sector policies – the new bill for coal sector that seeks to liberalise the sector and allow private mining companies to take up coal mining for the first time- deregulation of diesel prices and now part withdrawal of subsidies for cooking gas.
These are bold reforms and require political conviction to take economic decisions that may not be palatable for voters in the short term. The political mandate at the general elections followed by the equally convincing poll results at the State have helped the Government to push through these crucial decisions that will help improve the fiscal health of the economy.
The sub-optimal condition of the coal sector has had a negative impact on the economy.
India is importing large quantities of coal despite having the fourth largest reserves globally. Lack of transparent allocation policies coupled with laws that restricted the sector to only State run Coal India Ltd. prevented large investments with much of the coal remaining untapped while demand grew over the years.
In the hydrocarbons sector, the Government did well to come out with a final decision on gas pricing although it was below industry expectations. The decision to deregulate diesel prices was overdue as it was a huge drain on the fiscal health of the economy, as large subsidies were being given for a fuel that had huge downsides on climate change considerations. The deceleration of the economy is a must as India takes centre stage globally as a responsible economic power.
The first signs of fresh thinking were evident when the new Government decided to integrate the responsibility of the energy sector by assigning the portfolios to one Minister in Mr Piyush Goyal who is in charge of coal, power and renewable energy. This has brought about a new thinking as there is now a holistic approach in policy framing.
A case in point being the new thinking of getting conventional power generating companies like National Thermal Power Corporation to put up large scale solar power plants in their backyard to bring in the required amount of unconventional green power into the system.
Clearly, there is evidence that the new Government is committed to bringing in reforms and putting the Indian economy on a strong growth trajectory. Going forward, this buoyancy at the political level will be instrumental in overcoming the hurdles in the energy sector and propelling economic growth.