Burning brighter

BS OPINION

One of the more credible attempts to demolish the flattering estimates of Chinese GDP growth has centred on Chinese electricity consumption. If this has been static, or grown only marginally, the argument goes, how can China's GDP have grown by 10 per cent?

Do the same exercise for India, and amazingly, the same point can be made "" while manufacturing has been growing at a much faster pace than it did last year, the official infrastructure indices for April to August show a significant slowdown in the growth of electricity production!

Now we may have a partial explanation for the curious numbers. Thanks to power sector reforms that have begun to yield the initial results, power thefts in at least eight states have reduced considerably.

West Bengal, for instance, has seen a 27 per cent hike in revenue in 2002-03, and Uttar Pradesh has seen an 8 per cent hike in the same period "" since electricity generated hasn't increased by as much and tariff increases have been modest, at least some part of the hike is probably represented by a reduction in transmission and distribution losses that range from 40 to 50 per cent of the total electricity generated in the country.

States like Andhra Pradesh, Karnataka and Rajasthan, similarly, have reported reduction in these losses by around 4 percentage points each. And as reported in this newspaper last week, Maharashtra, Haryana and Gujarat have reduced cash losses by enough to become eligible for cash incentives from the central government.

Once the newly-privatised power distribution firms in places like Delhi earn a decent return on their investments, this has to result in tariffs falling, and will serve as the government's most powerful argument in favour of further reform.

And given the fact that around a third of the electricity generated in the country is absorbed by what are called theft & dacoity losses, the amount by which tariffs can be brought down by curbing theft is tremendous.

If a third of the power is stolen each year, on a rough calculation the tariff on the remaining power needs to be hiked by over 50 per cent to make good the theft. Now, if politicians could promise to reduce power costs by even 25 per cent (the power business has to also move from loss to profit), through power reforms that reduce this theft, it is easy to see how reforms can be an electoral winner.

While various states have done well to reduce theft, we are still in the early stages of the game. Even today, for instance, a massive 34 per cent of Karnataka's power production is not billed, as is 38 per cent of Rajasthan's.

Apart from the fact that no business can be solvent with such losses, there is certain to be more competition in the sector in coming years, now that there is a new electricity law. And as in other sectors, this will drive down prices.

At that stage, if they don't accelerate their loss reduction programme, the state electricity boards will be in even deeper trouble than they are already.