Suman Bery: On Inclusive Growth

Poor households stand to be major beneficiaries of enhanced nuclear energy supply

Following the meeting of the National Development Council on December 19, the Eleventh Five-Year Plan is now official reality. As has been widely reported, the Plan aims for an average GDP growth rate of nine per cent over the five years it spans (2007-2012), reaching ten per cent towards the end of the Plan period.

Although the Prime Minister has cautioned that the financial crisis raging through the banking systems of the industrial world could well impact on India's prospects in the short run, the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, has observed that the major risks to achieving these demanding growth objectives lie more in domestic policy than in the international environment.

In the past, the availability of domestic resources (savings) and foreign exchange were the binding constraints on the economy, as also the availability of food. As economic leadership was passed back from the public to the private sector, there has also been some concern about investment intentions. As these earlier constraints have eased, in their place infrastructure, most of all electricity, has assumed pride of place.

Electricity deficits increased in 2006-07 (over the previous year), touching 9.9 per cent in energy supplied and 13.5 per cent in 'peak demand' on an all-India basis. The 11th Plan (2007-12) targets an additional 78,577 MW of generating capacity, the minimum required to draw level with demand and to provide 'electricity for all' by 2012. The actual capacity addition in the 10th Plan was just 51.5 per cent of the original Plan target of 41,110 MW (excluding some 6,000 MW from renewable sources like small hydro and wind power, which have local value but no or limited reliability as sources for grid supply).

These shortfalls carry obvious implications for the competitiveness and therefore growth of the enterprise sector of the economy. But the impact on the household sector (which of course is responsible for a great deal of economic activity as well) is equally important. The current situation remains disheartening, even shocking, for a society which has declared its commitment to "inclusive growth". Sixty years after independence just under half the country's population has no access to electricity or any other form of commercial energy.

No doubt brown-outs and shortages inconvenience existing consumers, who are typically among the better off. But those already enjoying connections enjoy an incumbents' advantage; this has paradoxically been reinforced by the electricity trading regime now in place. For example, 45 per cent of the villages in Orissa (and a much higher percentage of households) were un-electrified as of March 2006; yet the state exported 1,400 million units of electricity in 2006-07. Consumers in Delhi have been benefited by states like UP (42 percentage of villages unconnected), foregoing their shares in central power stations. If pressure mounts on the shortages side, more such diversion could be expected at the cost of the unconnected.

It is against this depressing background that the whole debate on nuclear energy has to be seen. Unfortunately, the debate has got wrapped up with issues of security and the relationship with the US, which have vitiated the purely energy-related aspects of the government's plans and strategy. I must declare an institutional interest in this matter: some years ago, just as I had joined NCAER, we submitted a study to the Nuclear Power Corporation of India (NPCIL) on India's nuclear options.*

In the limited debate on the purely energy-related aspects of the government's nuclear plans, much has been made of the limited share of nuclear energy even if the supply constraints on fuel and technology were relaxed. For a large system that is facing a supply deficit that has hovered around ten percent for over a decade, even small shares are significant in absolute terms. The 4,120 MW of existing nuclear capacity, currently 3 per cent of the country's total, mainly feeds the northern, western and southern electricity grids.

The existing plants (as also proposed future ones) are located in states poorly endowed with coal reserves. For some of the states concerned "" like Rajasthan with 17.5 per cent and Maharashtra with nearly 10 per cent "" the relevant shares of nuclear plants in generating capacity are set to increase further with new plants now under construction. The percentage share in Tamil Nadu will touch double digits in next five years.

India's seventeen existing nuclear power plants are working below capacity owing to insufficient fuel supply. These "base-load" plants can operate for months at a stretch and are capable of reaching "capacity factors" in the 80-85 per cent range (like well-run coal-fuelled plants). But because of the fuel mismatch, our nuclear plants reached a "capacity factor" of just 63 per cent in 2006-07. This approximate 20 per cent drop represented some 800 MW of lost capacity, roughly equal to the connected load of 400,000 low-income households. At the root of the fuel supply problem is a lag in developing indigenous uranium supplies. To supplement the capacity of existing sources, new mines are being explored and developed, a process prone to delays. There is a real risk of capacity expansions coming up in the 11th Plan (2007-12) being similarly hit, unless fuel supplies could be tapped in the global uranium market.

Critics of India's nuclear power ambitions argue that other fuel sources for electricity are widely available. In this context one should note the persistent under-achievement in creating conventional generation capacity over several plans. While the Planning Commission Deputy Chairman has expressed greater optimism with respect to initiation of projects in the 11th Plan, as of September 2007, construction work was yet to start on earmarked projects that should contribute 22,783 MW (29 per cent of total). Several of these projects are "green-field" ones involving land acquisition and mitigation of environmental impacts. There are numerous contractual issues that could also hold up things. By contrast, the nuclear sector contributed 1,080 MW of new capacity in the 10th Plan, making up 83 per cent of its small target share of 1,300 MW. The strategy of setting up new units at existing plant locations and replicating unit designs helped this result.

Time is critical for the electricity sector, already deep into shortages and its projects way behind schedule. India's nuclear power sector has proven capacity to march ahead on its own, but the pace would accelerate significantly if technologies, not to mention urgently needed fuel, could be tapped globally. This could make a tangible difference for 80-90 million rural households.

* "India's Nuclear Power Option-An Evaluation," NCAER 2001 (mimeo.) Chief Investigators S.K.N.Nair and Laveesh Bhadari

The author wishes to acknowledge the considerable assistance of Mr S.K.N. Nair, former Member Central Electricity Authority (CEA) and former Senior Consultant NCAER. All remaining errors are, however, mine. The author is Director-General National Council of Applied Economic Research. The views expressed are personal.