The energy dilemma

Jun 02 2014, 04:14 IST
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SummaryHow the government can provide affordable fuel without putting a strain on the exchequer

Energy sits at the nub of every politician's deepest dilemma. How to meet the demands of their electorate for affordable and reliable fuel without pushing government finances into a deep hole? In the specific context of India, this dilemma has been about providing cheap (if not free) power to farmers, subsidised LPG and kerosene to householders and affordable diesel to transporters and, at the same time, keeping a check on government finances. So far, politicians have done a poor job in striking the right balance. They have concentrated only on meeting populist demands. As a result, the energy sector is in crisis and the exchequer faces a high fiscal deficit.

The most experienced brains in the country have sought to resolve this dilemma over the past few years. Vijay Kelkar (former petroleum and finance secretary), C. Rangarajan (former governor of the RBI), B.K. Chaturvedi (former petroleum secretary, cabinet secretary and member, energy, Planning Commission) and Kirit Parikh (energy economist and also former member, energy, Planning Commission) have, at some point or the other, headed a committee of experts to look into this issue. The terms of reference for these committees have been different but their underlying purpose has been to lay down a route map for the government to meet the legitimate and understandable demands of the poor while also complying with the macro demands of financial prudence. Had previous governments implemented even part of the suggestions recommended by these committees, the current administration would not have inherited such a mess. Unfortunately, they did not or could not, because they had a fractured and unstable mandate.

Today, the political conditions are different. The government is not shackled by coalition politics, the next elections are five years away and the PM has been elected to put the economy back on the rails of sustainable growth. There could not be a more propitious combination of circumstances to correct the imbalance. I list six initiatives below that I believe will help the government move in that direction.

One, energy prices should be market-oriented and energy subsidies should be scaled back. It would be socially and economically harsh to withdraw them totally. The poor cannot afford the current market prices, especially for LPG and kerosene. The structure of disbursement should, however, be altered. Currently, the PSUs make the initial payout. The government subsequently reimburses them but the lag imposes an interest burden on their bottom line. Subsidies

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