The Indian economy has had a remarkable transformation in the last 10-15 years. And the power sector is one of the best examples of this. Historically, the power sector in India has always had deficits. And that meant frequent power cuts and unreliable power supply even in cities. But the last 10 years or so has seen the deficits being wiped off completely. From a double-digit power deficit in FY09, India’s power deficit has narrowed to just 0.4% in FY21. Similarly, the peak power deficit has fallen from almost 17% in FY08 to 0.4% in FY21. Essentially, the distribution companies are now able to draw as much power as they demand. Power outages have largely become a relic of the past.
Part of the reason this has happened is due to the large investments in the sector resulting in a massive expansion of power generation capacity. In the last decade, India’s power generation capacity (including renewables) more than doubled to 380 GW as of March-2021 from 174 GW as of March-2011. This is the highest growth in generation capacity since the 1960s. The increase in generation capacity has been so much that the coal power plants in the country are currently running at just over 50% capacity utilisation. Towards the end of the 2000s, when the power deficit in the country was in double digits, these power plants were running at almost 80% capacity utilisation. The country now has an excess of power generation capacity. A sector with persistent deficits has now been transformed into a sector with a surplus.
The private sector has had a major role to play in this transformation. Of the 134 GW of conventional power generation capacity added in the last decade, the private sector accounted for 50%. In addition, the private sector accounts for over 90% of the installed renewable power generation capacity currently. Thus, this transformation of the power sector (from a supply perspective) would not have been possible but for the private sector.
The point of the above discussion is not that all is well with the power sector. Indeed, quite the contrary – there are several structural, deep-rooted (and intractable) problems with the sector. The low capacity-utilisation of power plants is in itself a big problem from the perspective of the entrepreneurs who have put in capital and banks who have lent money to these projects. The fact that power pricing in India is distorted is another problem and it creates issues of its own with the financial sector once again bearing the brunt.
Rather the point of the above discussion is that the belief that India is a supply-constrained economy is a relic of the past. The last 10-15 years have transformed several sectors where we find that rather than supply being a constraint, it is the demand which is the constraint.