States and union territories in India should demonstrate their ability to stand together in power sector reforms for the greater good as they did in the case of GST, felt Arvind Subramanian, Chief Economic Adviser, Ministry of Finance, Government of India.
Implementation of GST is “noteworthy and remarkable” and a tribute to co-operative federalism as all the State governments and union territories arrived at a consensus despite diverse interests, tax rates and systems. GST has enabled creation of a single market.
“But it is a travesty we do not have a single power market,” he said addressing participants on “Cooperative federalism to foster reforms: The case of the power sector” organised by the Hindu Centre for Politics and Public Policy. The event was moderated by the Editor, BusinessLine , R Srinivasan.
The cooperative federalism has to be harnessed in power sector while “keeping at bay competitive populism” – an instance of this is free power.
While poor segments of the society have to be supported, it has also to be recognised that State utilities levy cross subsidy surcharge to protect themselves, levy diverse tariffs and drive up cost of power for industries.
Competitiveness of industries is affected and domestic manufacturing sector is disadvantaged. Also, diverse tariffs and lack of transparency leads to ‘rent seeking’ and corruption, he pointed out. Gains in power generation capacity have been offset by financial slippages. The power sector is among the largest contributors to bad debts and over capacity has led to over 40,000 MW of unutilised power, he said.
Subramanian presented an argument for bringing down subsidy to renewable energy sector at least till it becomes more competitive to thermal power. The subsidy impacts competitiveness and capacity utilisation of thermal power plants and the governments also bear the burden of the loss, he felt.
A single market for power will push discoms to be more efficient. The Centre could consider bringing in regulations to rationalise tariff. Electricity could brought under the GST regime to bring down costs. State governments can be compensated for losses as is being done under GST. “This can be done if we apply our mind,” he felt.