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Where is India's economy heading?

Ulrich Bartsch's picture

The India Economic Update 2012 will be discussed online.Ulrich Bartsch, the World Bank's outgoing senior country economist for India, will lead a 24-hour live chat on the World Bank India Facebook page. He and other experts will be discussing the Bank's latest India Economic Update. The chat will begin Wednesday, Oct. 10, at 4:30 p.m. India Standard Time (7 a.m. Eastern Daylight Time in the United States). Here, he provides a sneak preview.

India’s economic growth has slowed to a pace not seen since the beginning of the 2000s. At the same time, the current account deficit has reached a record high. We project growth in the current fiscal year to reach around 6%, a slowdown from the already low 6.5% growth in the previous year. This growth projection is predicated on an improving domestic and external environment, but the risks for a worse outcome are high.

No more blackouts? India’s states show the way

Ashish Khanna's picture

Satellite photo of India by nightIntroduction by Kalpana Kochhar, chief economist of the South Asia Region

This summer, I wrote about keeping India’s promise alive and realizing its great potential. As I said then, energy reforms are crucial if the country is to boost growth. In the wake of the world’s largest blackout, which left 600 million people in India without power, two World Bank colleagues have written an op-ed about examples India can turn to, at home and abroad, as it seeks to tackle seemingly insurmountable power issues. Ashish Khanna is a senior energy specialist in the Bank’s New Delhi office, and Jyoti Shukla is energy sector manager for the South Asia region. Here are excerpts from their article, which appeared in the Hindustan Times:

Let Scientific Precision Not be the Enemy of Common Sense

Zahid Hussain's picture

The supply of electricity is a necessary ingredient for economic and social development in low income countries. Electricity is considered to be one of the most important services for improving the welfare of individual citizens. In the digital age, it is difficult to visualize development without electricity. Apart from the availability of energy per se, change in the quality of energy is one of the most important drivers of productivity.

The process of economic development necessarily involves a transition from low levels of energy consumption to higher levels where the linkages between energy, non-energy inputs and economic activity change significantly as an economy meanders through different stages of development. With such progress, commercial fossil fuels and ultimately electricity becomes predominant. Further, the expansion of electricity supply is critical to minimize the consumption of biomass fuel that has been responsible for the massive deforestation, desertification and many health problems.

All of the above sounds fairly straightforward and non-controversial, right? Not really. Count on economists for coming up with Harry Truman’s proverbial “on the other hand”. In other words, there are no straight answers as is most often the case in the infernal complexities, contradictions and ambiguities of our favorite ‘dismal science’.

The Chicken and the Egg Ought to Come Together

Zahid Hussain's picture

The power supply situation in Bangladesh remains as precarious as ever; with power outages becoming more erratic and load shedding persistently higher than the corresponding months in the previous year (see Figure). Bangladesh is currently experiencing unprecedented levels of load shedding nationally. Brought about by a shortage of generation supply capacity, load shedding is a last resort measure to prevent a collapse of the national electricity supply system. The risk of load shedding will remain high until at least 2013 if further actions are not taken to ameliorate the situation. Specific and immediate interventions were needed to minimize the risk of load shedding until the new peaking plant and base load electricity generating capacity being built comes online.

The government has taken initiatives to increase the generation capacity to 7,000 MW by 2013 through various technologies (fossil fuel and renewable) with both private and public sector participation. A large portion of this plan relies on quick rental power based on imported liquid fuels which are expensive, more than three times the cost per unit of electricity at which power is currently produced by large power plants.

Costly Electricity May Still Be Cheap

Zahid Hussain's picture

The deep power crisis that Bangladesh is currently living through is affecting more people than the 40 percent population who currently have access to electricity. The reasons are simple.

For industries power outages increase production costs and the operating uncertainty that enterprises face. Losses arise from spoilage of goods-in-process and damage to machinery. Often the cuts in power supply cause production losses lasting beyond the duration of the outage. E-commerce and ICT cannot operate without reliable supplies of electricity. Mechanization of businesses is rendered ineffective, affecting productivity. SMEs rely on electricity for a variety of needs—lighting, refrigeration, grain mills, water pumping, food preservation and you name it. More generally, economic growth that creates jobs and enhances incomes requires electricity. Less and unreliable electricity translates into less and unreliable jobs. This is now a well established fact.

The million dollar question is what do we do to energize the economy?