India wants to be a power on the world stage, but back home it's having power troubles of a more mundane variety. On July 31, sweeping blackouts struck the country's north and east, leaving an estimated 600 million people -- nearly 10 percent of the world's population -- without electricity.
While it is still too early to say what the exact cause of this crippling power outage was, the crisis underlines how dependent India's economy is on electricity -- and how unreliable these economic sectors can be. More importantly, this week's events are a stark reminder of the broad reforms needed for India to finally emerge as an economic superpower.
Some have suggested that the failure of India's electricity grids was the result of a number of states overdrawing electricity in recent months. Although a few grid operators and at least one state have denied this claim, such an explanation is plausible: India has had an atypically dry monsoon season, leading farmers to use more electricity to draw on water wells. As the country's agricultural sector receives heavily subsidized -- if not free -- electricity from the government, unusually large electricity consumption during a period of extreme drought should be no surprise.
The bigger story, however, is the institutional deficiencies and legacies of decades of poor policy that make India's electricity sector a weak link in the country's economic development. In India, nothing captures the attention of the government like a crisis, and the global attention engendered by this power outage -- the largest in world history by some measures -- should be channeled into enacting long-overdue reforms.
Many analysts -- including the authors of this article -- have long warned of a looming Indian electricity crisis owing to a yawning gap between electricity supply and demand. India's entire electricity supply chain, from natural resource production and distribution to electricity generation, transmission, and distribution, is plagued with problems. Domestic production of coal, which is responsible for roughly two-thirds of India's electricity supply, grew at just 2.6 percent a year between 2001 and 2011 -- compared with nearly 8 percent annual growth in electricity demand during the same period. India has abundant reserves, but disputes between local environmental and rural groups, and Coal India, India's national coal corporation, have prevented their development.
Bureaucratic red tape and logistical hurdles bedevil the process at every turn. Land acquisition struggles and a byzantine regulatory system hinder coal production, and transportation bottlenecks prevent coal from easily getting from the major production sites to the major demand centers. As a result of the domestic production shortfall, India has had to rely on more expensive imported coal. However, because Indian states sell electricity at low, heavily regulated rates, electricity generators have been largely unable to pass on the higher cost of imported coal to consumers. The ultimate result is a crippling shortage of coal.
India's natural gas industry, five years ago a sector of great optimism, is struggling from similar domestic production shortages and infrastructure limitations. As a result, it is also forced to increasingly depend on expensive imports of liquefied natural gas to cover supply shortfalls. But again, because India's state utilities are unable to pass on higher costs to consumers, imports provide little respite from supply shortages.
Although nuclear and renewable energy, including wind and solar power, are often discussed as potential solutions to India's electricity shortages, these sources face substantial hurdles of their own. Despite a historic cooperation agreement between India and the United States, political and logistical hurdles have once again intervened to limit interest in investment in new nuclear facilities. Renewable energy, while seeing impressive growth rates, is still expensive and dependent on government support -- and in any case, it will not be able to come anywhere near meeting the country's burgeoning energy demand.
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