India’s Power Play

drum_picture3sm.jpgWe have been hearing of mammoth developments in every sector of the Indian economy but it is the power sector on which all other sectors are dependent. India has long been fighting power crisis but in the years to come the need for power will grow by leaps and bounds. A report by CII and KPMG “ India Energy Inc. – Emerging Opportunities & Challenges” states that the country’s power and upstream energy sectors need investments to the tune of $120–150 billion in the next five years.

There is an immediate need for strong private sector participation to complement public sector and to bring in the required capabilities and technologies. The Indian energy sector is attracting investment in diverse streams, which is driven by a surging economy thus resulting in a demand-supply gap in the short run and the need to achieve sustainability and self-sufficiency in the long run.The Government has felt the increasing need for power and is exploring all possible opportunities. Government is framing policies to promote private investment. And the private interest in captive coal mining, oil and gas exploration and in power sector has shown significant progress. Companies in India and beyond are looking for opportunities to invest in the country’s power sector. With companies announcing huge investment plans in the sector there is supposed to be a substantial increase of power generation in the coming years.The news-making nuke deal is also a major step in bringing India out of the power crisis. It is believed that the nuke deal if successful will eliminate the scarcity of power in the country thus benefiting the economic growth. But the fractures of a coalition government have made the nuke deal a distant possibility.Tariff reform in the energy sector and distribution reform in the power sector are two important steps that need to be successfully carried out. Tariff reform to phase out subsidies or to target them effectively and distribution reforms to bring efficiency in the power sector are vital. A lot will have to be done on the infrastructure front by developing ports, railways, pipelines and power transmission networks to support the power sector.India has long been facing the brunt due to fluctuating oil prices in the international market, which is the major source for oil in the country. Another major issue is to replace coal, which represents 51% of the energy basket and is exhaustible in 40 years. The price and supply shocks could become the major roadblock for the energy sector. India needs to look for various sources of energy like hydro, nuclear, natural gas and renewable sources. Enhancing domestic production and taking equity positions in energy resources abroad are also necessary steps to reduce the effects of fuel price shocks.Namit Agarwal