4 August 2012
ON JULY 31st passengers on Delhi’s metro, one of India’s spiffiest bits of infrastructure and a symbol of its modernisation, felt their trains grind to a halt, some of them deep beneath India’s capital. They had to be evacuated. It was just one drama across the north and east of the country, home to over 600m people, half India’s population, where successive power cuts struck on July 30th and July 31st. Coal miners were trapped; traffic signals went blank, creating epic snarl-ups; hospitals lost power. Firms without backup diesel generators just had to go without.
By August 1st the grid was sparking back to life. But the blackouts will have a lasting effect. The grit of most Indians was on display: they did not start looting or killing each other. So was the magisterial arrogance of their rulers: “…this is not something new to us,” said the chairman of Power Grid Corporation, the state-owned body that runs the power-transmission network. “The country is in safe hands.”
As if parodying its legendary lack of grip, the government carried out a cabinet reshuffle in the midst of the blackouts, in which the main change was that the home minister, P. Chidambaran, became finance minister (again). Amazingly, the minister of power was promoted to home minister. A blame game began almost immediately as regional leaders, national politicians and officials tried to evade responsibility. Fairly or unfairly, the ruling Congress party is likely to be damaged most.
Beyond the poverty of politics in India, three problems loom large: the narrow fault that caused the blackouts; the wider crisis in India’s power sector; and the shoddy state of the country’s infrastructure, from roads to power stations, which is a brake on economic development.
On the first, the technical glitch, the best explanation is that some states used more than their quota of power from the national transmission network that links up India’s five regional grids. The extra demand may have reflected a disappointing monsoon that forced farmers to pump more water for their fields. In any case, it overburdened the system, causing a cascade of failures. To cut the burden, power plants were shut down, some automatically.
“It could have happened anywhere in the world,” argues one industry executive, who blames human error and the greediness of some states, not shoddy equipment. Others reckon that, despite a recent surge in investment, the transmission network is not up to scratch. “You’re talking about 40 or 50 years of underinvestment,” says Amish Shah of Credit Suisse, a bank.
The transmission network is not the only vulnerable part of the power supply chain, which is one giant bottleneck. Frequent minor blackouts are common. As a result most large firms, and even India’s airports, have backup generators or their own mini-power stations.
The pressure will only grow. Demand is expected roughly to double over the next decade as manufacturing output expands and more Indians buy televisions, computers and fridges. That prospect has led to a boom in private investment in new power stations—which should be one of India’s big success stories.
But the rest of the supply chain is rotten. Not enough coal is being dug up by the state monopolist, Coal India. Electricity still needs to be shifted around the country, from coal-rich states in the east to the industrial west —yet the transmission system is rickety, as the blackouts showed. Finally, power must be delivered down the “last mile” to homes and businesses. Most local distribution firms are state-owned and all but bankrupt, as politicians insist that tariffs stay low and that big swathes of the population, including farmers, get free power. Many Indians get away with simply stealing it.
Private-sector power plant firms are being squeezed by fuel shortages and by end-customers that are often financial zombies. As a result, says J.P. Chalasani, the boss of Reliance Power, a power-generating firm, “the big worry is that the industry starts cutting back on long-term investment in new plants.” Banks also face bad debts from projects that are no longer viable, so troubles in the power-supply business spread to the rest of the economy.
Despite these problems, the government has merely applied sticking plasters and tried to knock heads together. It has ducked fundamental reform, which would probably involve breaking up Coal India, privatising local distribution companies and installing new regulators with teeth. Its reluctance to shake up the power market is coming back to haunt it.
It is true that other parts of India’s infrastructure are in somewhat better shape. A vast effort has been made over the past decade to stiffen India’s economic backbone, and the results can be seen from a new airport in Delhi and a metro system in Bangalore to the availability of a mobile-phone signal almost everywhere.
Yet without electricity, the life blood of an economy, some of these things will not work—as Delhi’s commuters discovered. And there is no question that at least half a decade of government complacency and incompetence is beginning to hurt the private investment that India must rely on. Plenty of trophy projects, which involve experimental public-private partnerships are not making money and face uncertain rules. Another big industry, telecoms, is also in crisis, largely thanks to government graft and erratic regulation. Most economists reckon that India needs to invest a tenth of its GDP in infrastructure every year to sustain growth of 8% or more. Investment has probably slipped well below that. Now that the lights are back on, that is something really to worry about.