Out of Power? Political Capture of the Indian Electricity Sector -- Guest post by Meera Mahadevan
This is the eighteenth in this year's series of posts by PhD students on the job market.
In 2012, 700 million people in India suddenly found themselves without power for over 10 hours. At the time of the incident, political parties blamed each other for mismanagement and failing infrastructure. Such incidents reflect the extensive dysfunction in the sector, with technical problems and billing leakages that are among the worst in the world, amounting to 20% of electricity generated. The poor quality of electricity supply imposes major costs on the Indian economy; electricity shortages, for example, reduce manufacturing plant revenues by 5-10%. Why do these problems persist despite exponentially growing power generation? My job market paper shows that political corruption is one of the root causes behind unreliable electricity supply.
What is the link between political corruption and poor electricity supply? In democracies, incumbent politicians may consolidate power by favoring their voters with better access or lower prices. In India’s electricity sector, where politicians do not have direct control over electricity pricing, they may resort to illicit means in order to do this. Lower prices may actually benefit targeted consumers. But such patronage is costly: it hurts the revenues of electricity providers, inhibiting their ability to invest in infrastructure, and lowering electricity reliability for all consumers. While subsidies and increased access benefit consumers in targeted constituencies, the resulting underinvestment by providers may lead to unreliable supply.
Estimating the often-ambiguous welfare implications of corruption is, therefore, a challenge. Especially since detecting corruption is hard: corruption is frequently concealed, complicating the task of making causal inferences and identifying mechanisms of corruption. In this research, I develop novel methods to address these challenges, and find that political corruption in the electricity sector leads to large revenue losses for electricity providers, worsening their ability to reliably provide electricity.