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Ye Dil Maange Energy Mo(di)

The things we want from Prime Minister Narendra Modi and his new cabinet

Energy, a decent Renewables policy will probably be Modiji's biggest proof of the replicabality of the 'Gujarat model'. If there is one major contribution where he stood out, it was in the manner in which he turned around every aspect of the Power industry in Gujarat. The key metrics on which the industry has changed over the years:

  • It operates at full capacity.
  • The industry is now profitable, a loss of > ₹2,000 crore has been turned into a profit of > Rs 2,000 crore over 10 years.
  • Capacity addition is above the national average.
  • Electrification and power uptime are well above the national average, and rising.
  • The State is among the top 3 in terms of solar capacity, and is adding capacity at among the highest rates in the country.

This is a good example of the 'Gujarat Model'. All this cannot have been achieved alone, but Modiji certainly facilitated it. But once the broad trends are in place, the energy sector has been the great accelerator for Gujarat's growth, and is at the core of its competitiveness.

The 'fertile soil' that I spoke about is the savings rate, and reinvestment habit of the Gujarati population. Not only are these (power sector) investments enormously value-creating, but the wealth so generated is reinvested back into growth, creating a huge differential over the long term with, say, a West Bengal. So good behaviour compounds, catalysed with good leadership.

Modiji needs to set off a number of virtuous cycles in various sectors of the economy, with sustainable growth in one sector setting off a series of spin-off effects in other sectors. The Govt's key role will be to kick-start such processes a variety of areas, with low capital and surgically placed 'equity' that absorbs the initial pain of investing, till the returns start kicking in. This would be a far better way the previous regime's dole-based system, which only encouraged sloth and raised labour costs for the wider economy, even as it may have stemmed hunger at the bottom of the pyramid. That policy may have had some initial usefulness, but has not outlived its time.

Notice that I have emphasised 'Capital' subsides, rather than doles. They remain assets on the Govt Balance Sheet, with a clearly articulated exit policy for these assets. Accompanied by some real courage in bringing down the doles the money so saved can be used to fund these capital subsidies. Can you imagine what ₹85,000 crore of solar subsidies can do? It can create 28,000 MW of capacity, even as we reduce our fuel subsidy bill. My calculations may be extreme, but we should at least set off in this direction. 10 years of this, and the spin-offs of solar capacity at ₹3 crore per MW will be evident across the economy.

Watch out more in this series

Click here to read Part 1