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Indian Growth Story Needs An Energetic Push

As we enter the last year of the 11th Five Year plan (2007-12) of the Indian economy, two tasks are primarily undertaken. One, assessment of the performance during the Five Year plan and setting up goals for the next Five Year plan.

A release by the Planning Commission reveals that India is expected to end the 11th plan period with about 8.2% GDP growth. This is below the target growth of 9%. However, the government points out that the achievement is commendable given a drought year as well as global economic slowdown during the five years under consideration.

While the government has set up a separate website for updating investments across infrastructure projects, details for sectors such as ports, railways and airports are as dated as June 2010. A look at the performance of some of the sector whose information is available reflects under achievement of targets. However, the ratio of achievement is far better the earlier years.

Power Sector

  • In FY 2010-11, achievement of capacity addition was 40% below target
  • The target for 2011-12 is set at 17,601 MW, 13.5% lower than last year
  • Power generation target was missed by a marginal 2.4%.

Roads & Highways

  • The Ministry of Road Transport & Highways had set a road construction target of 2,500 km for 2010-11.
  • It managed to achieve nearly 71% of this target.
  • While the road ministry has scaled down the target for 2011-12 to 2,000 km, the government has asked the road ministry to revise the target upwards in order to develop infrastructure at a rapid pace.

Development of infrastructure as well as investment projects need to be supported by availability of energy sources. It is estimated that if the Indian economy grows by 9% during the 12th five-year plan (2012-17), demand for commercial energy will increase at 7%.

The Planning Commission, through its paper “Issues for the Approach to the Twelfth Plan”, highlights that the energy sector requires both a supply side response as well as demand management. Given the skyrocketing petroleum and coal prices in the global markets, energy pricing has become a major issue.

Power Sector Issues

  • A target of setting up 100,000 mw is required for the 12th Plan (against likely achievement of 50,000 MW in 11th Plan)
  • Coal availability is likely to be a major constraint
  • Hydro-power development is restrained by forest and environment clearance procedures.
  • Owing to weak power distribution reforms, AT&C losses are reducing at a far slower pace than required. This is affecting the financial  health of the state electricity boards, which lose close to `70,000 crore per year.
  • Open access is not being operationalised across the country

 Coal Production

  • India will need to import 250 million tonnes in 2017-18, with the government assuming an optimistic coal production figure by Coal India (assumed number not known yet)
  • Coal India needs to become a coal supplier and not just a mining company. This means that Coal India can act as a canalising agent for meeting India’s coal requirements.
  • Another hurdle in the development of domestic coal sector is the environment and forest clearances of coal mining projects, including private sector captive projects.
  • Expansion of rail and port capacity will be required for movement as coal requirement rises.

Petroleum and Natural Gas

  • Government’s initiative through the NELP has not managed to drastically improve the domestic crude oil supplies and India continues to be import dependent.
  • Pipeline network for transportation of natural gas and LNG is limited and requires a massive expansion drive.

 Other Energy Sources

  • India plans to develop its nuclear power programme with higher safety in mind. In fact, with a sharp growth estimated in the new uranium reserves found in Andhra Pradesh (at 1.5 lakh tones), the fortunes of the nuclear power sector look bright.
  • India’s Solar Mission is facing dearth of investment.
  • Wind power development, including offshore wind power, needs to be encouraged. However, the current incentive system has resulted in lower increase in wind power generation and is being treated as a tax shelter by investors. (Discussed in detail in the following articles of the current issue)
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