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Reforming Energy and Water

A decent renewables policy will probably be Modiji's biggest proof of the replicability of the Gujarat model

India is not all Gujarat, but (all) Gujarat is India. The entrepreneurial drive, the high savings rate, the measured consumption, the huge investments.....all this cannot be assumed across India. Modiji will have to rework his strategy to take on a more nebulous and diverse ground reality. The good news is, I think Prime Minister Modi is already on the job and the energy sector can look forward to a lot of changes.

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 > Rs 2,000 cr has been turned into a profit of >Rs 2,000 cr 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.

Gujarati population has it in their genes to have higher savings rate, and reinvesting the earningsf for growth. 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 Government's key role will be to kick-start such processes in 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 than 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 Government 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 Rs 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. Ten years of this, and the spin-offs of solar capacity at Rs 3 crore per MW will be evident across the economy.

Water: this is the area where I am expecting a Modi Government to be most sensitive to the underlying reality, not just present problems but the potential disasters that are set to loom over us if we ignore Climate Change. The major dimensions include; Waste Water recycling in urban areas. I don't understand why this is not a huge industry, with regulations forcing almost everybody to recycle waste-water. In large cities, there should be clear laws and rules that force hotels, housing societies, builders and RWAs, besides of course, all industry, to recycle water. It would create a huge (water) recycling industry, with its attendant spike in energy demand.

Water conservation would get a fillip on its own, and there should be clear standards for the proportion of virgin water allowed to be drawn from the city water supply. This should be a low and falling number, starting from 40 per cent and going down to 5 per cent over 10 years.

Here again, the PPP model can be tweaked to allow the Government to provide free land and some important capex, in return for a big (say, 50 per cent) stake in the service provider. After that, a revenue-share based bid could decide the actual licensee, and he would charge a certain regulated price.

Desalination in all coastal areas; this is already a big industry worldwide, with over 15,000 plants of different sizes across the world, about 60 per cent of them in the Middle East. Energy costs are high, but they are falling steadily, down to about 5-6 paisa per litre already. New technologies are on the horizon, which could come in at an affordable 1 paisa per litre. That would make it viable even for agriculture.

Water transportation and piping; just do more if it, especially replacing old pipes that account for the 30-40 per cent leakage in water transportation.

Micro-irrigation networks and solar-water pumping. Both of these are small industries that should become very big, with huge demand coming from agriculture. This would be one big spin-off benefit of corporatizing agriculture.

The writer teaches & trades: spandiya.blogspot.com.