Varghese Antony ,Dept. of Commerce                  Jollyamma  George,Dept. of Economics


St.Thomas College, Kozhencherry


            Electric power is a critical component as well as a determinant of a nation’s development. It is the most widely used form of domestic and commercial energy. It has become an inevitable necessity influencing every aspect of life, particularly in  developing countries. As a  key infrastructure component, it provides access to  communication across the  world and creates externalities in production, distribution and  exchange activities both as an  intermediate input and  as a component of final demand. It is the most economical and therefore essential form of energy for industrial and  agricultural growth.

            Being a clean and versatile form of energy, electric  power is one of the most important infrastructure sectors of the national economy. Providing adequate and affordable  electric power is essential for economic  development, human welfare and higher standard of living. Countries of the  world, especially the developing countries are  experiencing a radical change in policies and paradigm for their power sectors, particularly as  a sequel to  globalization and liberalization . For India’s power sector, the  past decade has been a tumultuous one. The winds of change that have swept power sectors world wide have brought the promise of an entirely new framework and approach for electricity, along side considerable uncertainty and few short-term results.


              Uninterrupted supply of adequate and reliable power at an affordable price would be the best ingredient to generate quicker growth through better production in power-based units. But unlike the other commodities, electricity cannot be stored for future use. In other words, its generation and consumption have to be simultaneous and instantaneous. The unique features of power  as a commodity or service make the dynamics of its supply and demand difficult to manage. Installing power generation, transmission and distribution capacity is a complex, time consuming and expensive process. Power is among the most capital-intensive infrastructure sectors.


Electricity sector Development in India


            Power has been placed in the list of concurrent subjects under the Indian Constitution with the centre and the states both having jurisdiction. After Independence, the State Electricity Boards (SEBs) were the sole utilities responsible for generation, transmission and distribution of electricity. On the eve of the launching of economic planning, the power sector of India was still in a primordial state. The nation depended mainly on non-commercial energy sources such as firewood, agricultural waste and animal dung. Installed capacity of electricity generation was only 1713MW and electricity generation only 5106 MU in 1950. The per capita electricity consumption was only 15.6units and the number of villages electrified stood at 3061, roughly 0.54 percent of total villages.


              The commencement of electricity production in India can be traced to 1880’s when a 130  KW  hydroelectric power plant was commissioned at Darjeeling. This was a small unit but it marked the beginning of a new era in power production in the country. The second important landmark in the electricity production was the setting up of a thermal power plant based on coal in Calcutta in 1897. In 1902, the Sivasamudram falls were harnessed to produce 4 MW of electric power for supply to the Kolar gold fields.


              The initial ventures in the power sector in pre-independent India were almost completely confined to private enterprises. The power system during this period was managed according to the Indian Electricity Act of 1910. On attaining independence, the need for integrating power development with the other sectors of the economy was keenly felt. Accordingly in 1948, the Electricity Supply Act was passed by the Parliament. As per this Act, a number of state Electricity Boards (SEBs) and Electricity Departments (EDs) started functioning  in various states and Union Territories. From the very beginning, the Independent India placed electricity in the concurrent list of the seventh schedule of the Indian Constitution. Electricity was put under the control of Ministry of Energy till 1992, when an Independent Ministry of power was formed.


             With the increase in the number of electricity projects all over the country, the need for a regulatory body at the national level arose. The Central Electricity Authority (CEA) was thus set up in 1950, with a view to evolving sound and uniform national power policy, formulating appropriate plans for power development and co-ordinating the activities of planning agencies in respect of control and utilization of national power reserves. At present the CEA helps the Ministry of power in all technical, financial and economic matters. On the recommendation of CEA, for implementation of power projects, the Government of India floated a few power sector undertakings like National Thermal Power Corporation (NTPC), National Hydro Electric power corporation (NHEPC), Rural Electrification corporation Ltd.(REC) Power Grid Corporation Limited and Central Power Research Institute (CPRI).


Investment and Generating Capacity


             Recognising the pivotal role of electricity in the socio-economic development of the country, the Government of India considered power as a core infrastructure sector, prioritised and committed huge resources to it in every five-year plan. The outlay to power sector during the first five year plan was Rs.393crore, which was 19 per cent of the total outlay. This increased to Rs. 143399 crore during the tenth five year plan period, which was only 16 per cent of the total outlay. The actual expenditure for power sector during the first five year plan was 260 crore and this increased to 885630 crore during the ninth plan period.


Growth of important supply side variables


               The plan-wise growth of electricity sector can be analysed in terms of the increase in installed capacity, number of villages electrified, length of transmission and distribution lines, per capita consumption, installed capacity and actual generation. The plan-wise growth of these key indicators is presented in Table No:1


                                                        Table No:1

                                       Growth of Electricity sector in India





Growth Rate    (%)

Total installed capacity (MW)




Hydro capacity (MW)




Thermal capacity (MW)




Nuclear capacity (MW)




Total electricity generation (MU)




Hydro generation (MU)




Thermal generation (MU)




Nuclear generation (MU)




No. of villages electrified




Length of T&D lines (CKt Kms)




Per capita consumption (units)








Source: Computed from CEA “All India Electricity Statistics. General Review-2005, New Delhi, 2005,p.17


                The installed capacity, which as only 1713 MW at the beginning of the first plan increased to 112684 MW as on 31st March 2004 showing an increase of 6478 per cent. The annual average compound growth rate being 8.06 per cent. The hydro power capacity which was only 560 MW in 1950 increased to 29507 MW in 2004 at an annual average compound growth rate of 7.62 per cent. The thermal capacity increased from 1153 MW to 80457 MW at a growth rate of 8.18 per cent. No investments had been made in the nuclear power sector during the first three five year plans. Nuclear source has been utilized since the fourth plan. The installed capacity increased to 2720MW in 2004 at a growth rate of 4.22 per cent.


             Total electricity generation which was only 5106 MU in 1950 increased to 565102 MU in 2004 at a growth rate of 9.12 per cent. The hydro generation increased from 2519 MU to 75242 MU at a growth rate of 6.49 per cent, thermal generation increased from  2587 MU to 472080 MU at a growth rate of 10.12 per cent and nuclear generation increased to 17780 MU at a growth rate of 5.89 per cent. The number of villages electrified increased from 3061 to 495031 at a growth rate of 9.88 per cent. The length of transmission and distribution lines increased at  the rate of 10.57 per cent and per capita electricity consumption increased from 15.6 units to 592 units at the rate of 6.97 per cent.


             An analysis of the source-wise changes in the installed capacity and generation shows that the share of hydro power is gradually declining year after year. During 1970-71, the share of hydro was 43.40 per cent and this gradually declined and reached the level of 26.19 per cent in 2004. The share of thermal electricity increased from 53.75 per cent to 71.40 per cent during the same period. The share of nuclear electricity remained almost same. Experts are not categorical about an ideal ratio of the mix. But some maintain that the optimal mix between hydro and thermal in Indian condition is something like 40:60. The declining trend in the hydro electricity capacity would possibly be due to the following reasons. The time and cost over runs are unduly high as compared to thermal and hence electricity boards evince greater interest in the case of the latter, which are easy to start up and generate. Further people’s resistance to hydel projects is also quite formidable, as the construction of dams would cause destruction of forests, submergence of land under water and other ecological imbalances. In spite of these limitations, hydro electricity has several inherent advantages that make it the most preferred form of electric power.


Problems and Initiatives


                    The achievement of increasing installed power capacity from 1713 MW to 112684 MW since the commencement of five year plans and electrification of more than 5,00,000 villages is impressive. However it is a matter of concern that the Indian electricity sector shows several issues of concern. These include the impact of fuel shift away from hydro source in favour of thermal source, near stagnancy of electricity productivity in hydro stations, relatively low plant load factor of thermal stations, widening electricity demand-  supply deficit, lack of optimum utilisation of the existing generation capacity, large scale theft and inefficient use of electricity by the end consumer.

                 As these issues were chronic and persistent in Indian power system, Government of India, as part of liberalisation, launched several policies and programmes to make the electricity system efficient and economical. The CEA admitted that the present tariff policy needs a thorough change in favour of marginal cost pricing principle. To overcome the financial crunch, the Central Government announced the policy of privatisation in the electricity sector. To smoothen the reconstructing of SEB’s the Central Government replaced the Indian Electricity Act of 1948 by the Electricity Act, 2003, thus allowing for privatisation in electricity generation, transmission and distribution fields. The power policy comprehensively covers the legal, administrative and financial environment to make private investment attractive.


Evolving Strategies and Initiatives


              The union Ministry of power has taken some initiatives to remove the various problems faced by the power sector. For instance it has developed appropriate strategies and a blue print to address the various problems in a time bound manner. The outcome of these strategies hinges on their effective country wide implementation. These strategies and the blueprints are flexible and can be adjusted to accommodate positive inputs and developments. The strategies to realize the objectives have been evolved after a comprehensive, integrated and realistic  assessment of the strengths of the sector and of the challenges confronting it. The process has led to a range of mutually interdependent and complementary strategies to counter the challenges and exploit the strength/ opportunities. The strategies integrate the supply side imperatives with demand side management, short and medium term measures with long-term action plans, operational measures with institutional and structural changes.


            The objectives can be realized only if the plan is effectively implemented by all stake holders in the power sector. Power is a  concurrent subject under the constitution. The states have the greater  share of generation and transmission assets and almost the entire distribution under their control. They would need to play a proactive role in effecting institutional and result oriented changes.


Electricity Act 2003


            Enactment of the new Electricity Act,2003 is one major step in the direction of enhancing power generation. This Act represents a new regulatory paradigm for power in India and holds the promise to fundamentally transform the economics of this sector. Among the key provisions of the Act are : generation, other than for large hydro, is de-licensed; open access on transmission and distribution networks, mandates that by July 2008 all consumers above 1MW are free to choose their supplier; generation and distribution de-licensed in rural areas; power trading and market development are recognized, strong anti-theft and malpractice provisions; and functional unbundling of the integrated State Electricity Boards and setting up of State Electricity Regulatory Commission (SERC) made mandatory by states. The Act provides the necessary framework for broader participation in the power sector. However, it must be remembered that the Act cannot be itself guarantee transformation of the power sector. It merely provides an enabling framework and its success in meeting its objectives would bring entirely on its timely  implementation in keeping with its true spirit.




            India’s power sector has registered significant progress since the process of planned development of the economy began  in 1950. Hydro-power and coal based thermal power have been the main sources of generating electricity, while nuclear power development introduced in late sixties- is at a slower pace. The concept of operating power systems on a regional basis crossing the political boundaries of states was introduced in the early sixties. In spite of the overall development that has taken place, the power supply industry has been under constant pressure to bridge the gap between supply and demand. India being poised for a robust growth in the Eleventh Five Year Plan needs to give all attention to this sector which today is the backbone of industrial security. The need for new thinking, fresh management approaches and legislative/ regulatory changes for restoring operational efficiency and financial viability in key infrastructure sectors, including power sector, is more urgent now than ever before. So also the need for augmenting alternative power sources to balance the power requirement, conservation practices and preventive maintenance measures to manage the power at their levels. If more production, better distribution and use become the criteria then our potential can be our strength for performance, present and prospective. The major challenge of the power sector is to continue with the reforms with caution. That means we need to focus more on devising strategies to improve the financial health of the utilities, to enable competition and acceleration of economic growth while protecting the environment and most importantly, to raise the comfort level of the common man by making available quality power at affordable price. The vision is to make power available on demand by 2012 through all-round revitalization of the power sector in the country. Our efforts in that direction need to be stepped up with all vigour and sincerity so that the power sector would not generate economic shocks and shortages.




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