S.L. Rao
P.V. Narasimha Rao, before he became prime minister, read all the reports by L.K. Jha and the economists employed at the World Bank, about what must be done to put Indian economy on the growth path. As prime minister, he came with a clear vision of goals and how to reach them. The reforms that followed transformed the Indian economy.
A report reviewing the Indian power sector written by the Indian economists, Sheoli Pargal and Sudeshna Ghosh Banerjee, at the World Bank, has the potential to transform the Indian power sector. The energy sector in India has been dominated by welfare ideology, poor implementation, inefficient institutional mechanisms, rampant populism, bureaucratic capture and compromises. The ideology is that State ownership is honest and more concerned about consumer interests. There is an unwillingness to accept that producing a surplus is important for any investment in order to provide sustained good service and to build more capacity. A preference for charity given to disadvantaged groups rather than opportunity has dominated the sector. Tariffs are skewed to favour the poor and needy groups like those under agriculture, but with no mechanism to ensure that the needy are properly identified. The State-owned electricity boards and others owning coal and gas function as government administrations. Independent regulatory mechanisms, created to insulate the sectors from political interference, are captured (like the State enterprises) by the top level bureaucracy. They function largely in compliance with government wishes. There is little financial discipline: the enterprises amass huge debts paid for by governments and are a burden on nationalized banks.
Government ownership (and guarantees) of banks has hidden the reality that this burden is excessive. It will lead to collapse or require their huge recapitalization by government. That will affect adversely the government's ability to build physical and human infrastructure and raise its deficit.
