Trace the Institutional Changes in the Sectors of Electricity, Telecom and Urbanization with the Coming Up of Regulatory Reforms

INTRODUCTION

All economic reforms in modern India were the result of the financial crisis that occurred in 1991. Prior to this, India followed a state-led development strategy. Under this regime, most utility firms were public monopolies with their function carried out indirectly by the government. Late 1980s saw the deterioration of the state-led markets. From a fiscal deficit of 5% of Gross Domestic Product that existed in 1975-80, the figure fell to 10% of GDP in 1985-90. The deterioration slowly snowballed into a balance of payments crisis in 1991, when the Gulf war added to the existing woes of the government. The government secured an emergency loan from the International Monetary Fund (IMF) by pledging 47 tonnes of India’s gold reserves that was airlifted to the Bank of England. However, IMF placed certain conditions in exchange for the loan. These conditions included liberalization of trade, privatization of industries and opening up of the nation to globalisation. Dr Manmohan Singh, under the premiership of Mr Narasimha Rao, undertook extensive reforms in the industrial structure of the nation.

This assignment focuses on the reforms and its effects in three sectors- the power sector, the urbanisation sector and the telecommunication sector. The former two have achieved partial success while the latter is an example of a very successful reform. We consider each of these separately below:-

THE POWER SECTOR

The power sector was the first sector to undergo privatization post the 1991 balance of payments crisis. This reforms in this sector faced partial success. This is mostly due to the political aversion that this sector garners with privatization. The fear of defeat in political election keep governments from undertaking full-fledged reform, even in the face of heavy losses and poor quality output.

The sector practices a dual-subsidy system, which gives subsidy to both consumers and producers. Consumers mostly include agricultural farmers. The irony of this lies in the fact that in the Indian agricultural scenario, the farmers who are able to afford farm equipments that run on electricity (like electric mortars used for irrigation) are wealthy farmers. Such subsidies are especially high in states with powerful agricultural lobbies. Other industrial consumers established captive units for their power generation. This was especially true for states with poor utility performance and high losses in transmission and distribution.

This conflict of interest- political interest versus liberalization motive of the government has led to an uneven reformation and restructuring of this sector. Private sector today commands 36 percent of the total power generation capacity currently installed, while the state governments and central government own 37 percent and 27 percent respectively.