In recent times, the Narendra Modi government’s attempts at electricity reforms have seen limited support from the states. In 2014, and subsequently in 2018, the Centre via draft amendments to the Electricity Act 2003, proposed separation of carriage and content, a much-needed structural change in the electricity distribution business. The amendments did not pass due to the lack of consensus among the states. Similarly, the proposed Electricity (Amendment) Bill 2020, while less ambitious than previous attempts, has run into opposition from the states.
This center-state divide goes beyond legislative action. For instance, the Modi government’s renewable energy (RE) target of 175 gigawatts (GW) by 2022 and 450 GW by 2030, has seen slower-than-expected progress. Poor coordination between the centeral government and states remains a key challenge. Another case in point is the Centre’s renewable purchase obligations (RPO). There remains a considerable variation, across Indian states, in compliance of RPOs. While RPO is the most crucial driver in ramping up RE installations, the state electricity regulators (SERCs) have shown limited to no enforcement. Further, the policy disparity in rooftop solar, across states, has rendered the industry unincentivised to innovate and grow, thus slowing the progress of India’s rooftop solar target.
Genesis of divergence
Electricity is a subject in the concurrent list of the Constitution, which implies that central and state actors can both legislate on the sector. Both, central and state governments, are expected to work in tandem to deliver a reliable, affordable, and sustainable electricity system.
In theory, the current electricity framework provides for multiple mechanisms for collaboration. First, the Electricity Act 2003 stipulates that all major policies, such as the National Electricity Policy and Tariff Policy, are issued only after consultation with the state governments. Second, the Forum of Regulators, a statutory body, aims to bring uniformity of approach among the regulators across the country. Third, the Act provides for the creation of Coordination Forums at the central and state level. The forums are meant to act as a coordinating force between the central and state governments. Finally, periodic conferences of the power ministers are also meant to be an important convention to develop a common agenda.
In practice, none of the aforementioned mechanisms are binding on either the central or the state government. And so, lack of coordination and inadequate enforcement continue to plague the electricity sector. One-size-fits-all reform attempts by the central government do not account for the heterogeneity of the states. States are constrained by their own regional politics, supply mix, institutional capacity, and legacy issues. Political economy often influences the decisions of the states resulting in interference in SERCs. As a result, there is a misalignment between execution (by the states) and the Centre’s strategy.
What needs to be done?
A durable electricity system in India requires the cooperation and leadership of its states who have considerable authority over the sector. There is a need for coordination and pooling of resources between the central and state governments. There is also the dire need to ensure that climate change commitments are fulfilled. To achieve these objectives, it is necessary to have a mechanism that will ensure binding decisions at the operating level. Equally important is to adopt a conciliatory approach to forge political consensus at the state level, using the principles of cooperative federalism.
India’s Goods and Services Tax (GST) Council presents a good blueprint for harnessing cooperative federalism to further a nation-wide reform. It is a constitutional body, and its decisions are binding on all parties. The council requires a three fourth majority for the passage of any decision. Thus, the body aims to bring together Indian states and the central government on a common platform.
India’s electricity sector can adopt a similar approach and set up an Electricity Council. The share of votes may be defined in the Act. This will bring the state power ministers together in national decision making. A political consensus among the states can be built based on negotiations and discussions. The body can be the decisive authority on a wide range of inter-related (state and federal) issues such as tariffs, electricity market, benefit transfers, subsidies, privatisation, grid-decarbonisation, and more. A similar recommendation has recently been given by the Reserve Bank of India, in its Annual Report published in August 2020.
The electricity council has the potential to foster cooperative and competitive federalism – a necessity for furthering a unifying vision for electricity reforms in the country.
Balawant Ganesh Joshi is an adjunct fellow (non-resident) for the Wadhwani Chair in US-India Policy Studies at the Center for Strategic and International Studies in Washington DC. Joshi is also the founder and managing director of Idam Infrastructure Advisory Private Limited. Views are personal.
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