Some Light at the End of the Tunnel: Ingredients of Power Sector Reforms in India
SCID Working Paper 235
India's electricity sector is at a crossroads. The 1990s have brought a fundamental policy shift in sector governance, including restructuring monolithic State Electricity Boards (SEBs), increasing the private sector's role in generation, transmission, and distribution of electricity, and developing a new regulatory framework. The current wave of reforms envisions even farther-reaching reforms such as a national wholesale power trading market. Nevertheless, important challenges lie ahead. The country's enormous geographical size, dispersed population, and regionally concentrated energy sources pose particular challenges for provision of low-cost, reliable electricity. Governance of the sector is also complicated by the fact that power has been a concurrent responsibility of center and state governments. The policy tasks of upgrading and expanding the sector are daunting. This paper focuses on priorities for overcoming these challenges. The past decade of reforms in the Indian electricity sector have been focused on increasing generation capacity, but we advocate greater attention to the distribution and transmission aspects of the power sector. We emphasize the importance of creating a clear regulatory framework, tightening the link between actual costs of service and pricing, and removing transmission capacity constraints before moving to the more ambitious changes in the power market.