Industrial Electricity Tariffs in India


India is lagging behind for a variety of reasons in export competitiveness of Industrial goods especially at the lower end of the value chain. Some very obvious reasons spoken and written about extensively is the need for factor market reforms in Land, Labor and capital along with a mass scale vacuum cleaning of the regulatory burden. However, high overhead costs especially of electricity tariffs also makes Indian exports heavily uncompetitive. 

As per the 2019 World Economic Forum competitive index, India ranks 108th out of 140 economies in quality of electricity supply. The chart below by International Energy Agency does a comparison of Industrial Electricity prices between India and other selected countries from 2005-2018. 


Source: https://www.iea.org/data-and-statistics/charts/industrial-electricity-prices-in-india-and-selected-countries-2005-2019 

As the chart shows, India is almost 60% higher than China and 27% higher than Brazil and much more higher than USA, Canada and Russia when it comes to Industrial electricity Prices in PPP terms. 

In general, Indian commercial and Industrial users pay a higher price for electricity than domestic consumers and farmers. This kind of cross-subsidization is not just pulling Indian industry down but also is not helping the DISCOMs. As per the latest estimate for the year 2021-22, the losses of DISCOMs are now Rs.59000 CR, a meteoric rise from Rs.34000 CR in 2019-20. This clearly shows that getting the Industry to subsidize for domestic and farm electricity is not helping in cutting any looses for DISCOMs. It is instead killing the export competitiveness of Indian Industry. Add to that, additional cost to provision for Power outages, the overall cost of power supply is significantly higher for Indian Industries as compared to its Emerging economy counterparts.

The solution to this is well known and understood. We should pay for what we consume. However the political economy of Tariff hikes and putting a stop to free power for Irrigation makes it far too difficult for any government. The recent white paper by Ministry of Finance of Punjab mentions that the total power subsidy bill of the state is RS 10,668 CR out of which RS 7,180 CR is alone towards subsidy to farmer. Punjab's economy is debt ridden and completely broken and the elephant in the room which no govt. wants to deal with is free power. Punjab has paid a very heavy price for this in terms of reducing its Agricultural dependency as Industry has moved to Baddi in Himachal Pradesh over a period of time due to factors like cheaper electricity. 

In conclusion, i am not hinting that just sorting out electricity prices will make Indian Industry globally competitive. However, i want to point out that Industrial export competitiveness is a function of many factors. Structural reform is also needed in the power sector along with factor market reforms to make Indian export a success story. However, the pill is far too bitter to even prescribe, let alone to swallow.

- Jaydeep Daripa

Sources:

1) https://economictimes.indiatimes.com/news/politics-and-nation/punjab-government-struggles-to-keep-free-power-promise-in-summer/articleshow/90829868.cms

2) https://energy.economictimes.indiatimes.com/news/power/power-discoms-losses-widened-to-rs-59000-crore-in-2021-2report/91934081#:~:text=New%20Delhi%3A%20The%20bad%20performance,critical%2C%20according%20to%20a%20report.

3) https://energy.economictimes.indiatimes.com/amp/news/power/high-electricity-prices-hurting-indias-exports-oecd/72388803







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