Mapping Power: New Trends Demand New Strategies in Maharashtra

28 September 2018

Recent events show extreme discontent in rural Maharashtra. Fifty-eight silent Maratha Kranti Morchas in one year have mobilized lakhs of people. Recent agitations have demanded reservation for Marathas. And the Kisan Long March was based on a demand for farm loan waivers and implementation of the Swaminathan Commission's recommendations. All these events indicate a deep-rooted crisis in agriculture and allied sectors in Maharashtra, the share of which in the gross state value added (GSVA) has declined to 11.9% in 2017-18.

The lack of economic opportunities in various parts of Maharashtra is closely tied with the failure of basic infrastructural facilities, mainly water and electricity. Once recognized as the best performing public sector agency, the electricity utility in Maharashtra is now in a state of flux. The distribution sector is constrained by the legacy of high-cost power and large capacity addition but lower-than-expected industrial demand growth. Further, there is pressure from the centre to increase the share of renewable energy (RE), including rooftop solar with net metering. A recent tariff proposal by the Maharashtra State Electricity Distribution Company Ltd (MSEDCL) demanding a 23 per cent hike was met with strong opposition from grassroot activists. In view of these potentially unsettling emerging trends, it is imperative for the state to revise its political strategy of managing the sector. 

Figure 1: Financial and Physical Profile: Maharashtra

Figure 1 depicts some recent trends in Maharashtra’s electricity sector. Especially noteworthy is the rising cost of power, now among the highest in India. As a result, the annual revenue requirement for Discoms has ballooned from Rs 2.67/kWh in 2007-8 to Rs 6.15/kWh in 2015-16. At the same time, the share of industrial electricity consumption declined from 45 per cent in 2007-8 to 31 per cent in 2014-15. This was due to sluggish industrial growth and a high number of industrial consumers purchasing power privately. Consequently, industrial revenue decreased by 15 per cent during this period. The installed capacity of RE reached 6.40 GW which, while impressive, came at a high cost. Subsidies to agricultural and powerloom consumers have reached Rs. 10,500 crore in 2014-15, indicating growing pressure on state finances. While distribution losses have consistently declined over the years (down to 14.51 per cent according to the latest tariff proposal), in view of persisting unmetered supply to agriculture, this issue is far from settled. Another worrying trend is backing down of contracted power (6000 MW to 8000 MW per year) due to sales migration away from the grid (to open access consumption). In the case of Mumbai, both Tata Power and Reliance Infrastructure (now taken over by Adani Transmission) failed to contract power through competitive bidding, depriving consumers of the benefits of competition.

A complete understanding of the recent trends requires a deeper exploration of the political forces historically driving this sector. The story of electricity development in Maharashtra is best characterised by state attempts to accommodate both industrial and agricultural interests. The latter had a dominant role in the state Congress party and the broader politics of the state. The development of cooperative sugar factories provided a strong institutional foundation for the ruling Congress and helped initiate early rural electrification in the state. The adoption of flat rate tariff for agriculture in 1977 benefited well-off farmers by reducing the input costs for cash-crops. The expansion of electricity to rural areas was a part of a virtuous cycle of reaping electoral gains by building institutional networks ─cooperative, educational and panchayati raj. This cycle was broken in the 1990s with the decline of cooperative institutions, factionalism within the Congress party and growing pro-urban bias within the Congress leadership.

The Congress government had also adopted early generation reforms by negotiating a deal with Enron, which proved controversial. This started an era of high-cost power in Maharashtra. The Shiv Sena-BJP government came to power for the first time in 1995. However, since the new government had enlisted many disgruntled Congress leaders, there was no discernible change in policy. Along with substantially increasing the electricity subsidy burden, the Enron project also constrained the public utility's ability to add new capacity for nearly a decade (1995-2005).

The sector entered into a stage of stagnation thereafter with low capacity addition, high load-shedding and selective expansion. The newly established Maharashtra Electricity Regulatory Commission (MERC) and active civil society organizations (CSOs) tried to arrest this trend, but with little success. The state’s high economic growth pattern, however, enabled the state to continue cross-subsidizing agriculture. This ensured the stability of the Congress-Nationalist Congress Party rule for three successive terms (1999-2014). There were some attempts to direct the reform process proactively, mainly by bureaucrats. These included initiating internal reforms such as feeder separation and introducing transparency (under pressure from MERC and CSOs) as well as negotiating reasonable capacity addition deals. However, factors external to the sector (industrial growth slow-down and the centre’s RE push) hampered these initiatives. Consequently, the large capacity addition and ensuing demand shortfall led to the current situation of surplus power.

The political leadership has maintained a functional equilibrium in the state all these years by successfully managing the dominant interests through a combination of explicit and implicit subsidies (non-action in case of theft and arrears). The continued viability of this strategy is under threat from macro technological forces and changing federal policy. In this context, the mediatory role of the state assumes critical importance, mainly in resolving the issue of high-cost long term power purchase contracts and in incentivizing the bureaucratic machinery to play a developmental role.

Kalpana Dixit teaches political science at the Tata Institute of Social Sciences, Tuljapur. This research is based on work presented in full in the book Mapping Power, edited by Navroz K Dubash, Sunila S Kale, and Ranjit Bharvirkar.

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