Explained: In Power-Surplus India, Why Power-Cuts are Still the Norm

As a matter of routine, every afternoon, the power minister Piyush Goyal sends out a tweet titled Afternoon power check. Here are his tweets from the last few days:

Afternoon power check: 2,165 MW available at Rs.2.30/unit for states to buy. Check http://www.vidyutpravah.in (July 26, 2016)

Afternoon power check: 2,998 MW available at Rs.2.23/unit for states to buy. Check http://www.vidyutpravah.in  (July 25, 2016)

Afternoon power check: 5,085 MW available at Rs.1.89/unit for states to buy. Check http://www.vidyutpravah.in  (July 24, 2016)

Afternoon power check: 2,921 MW available at Rs.2.20/unit for states to buy. Check http://www.vidyutpravah.in  (July 23, 2016)

What this clearly tells us is that India as a whole has surplus power. Nevertheless, large parts of the country still suffer from power cuts. Just go to news.google.com and say power cuts + India and you will get a spate of news reports on it.

One such news report recently appeared in The Economic Times. It points out that no  Pan-India data on power cuts is available, nevertheless, rural India and small towns experience regular power cuts.

An NGO called Prayas, has been monitoring power cuts in different parts of the country and coming up with a monthly report. As of now the April 2016 report is available. The report collects data from 160 locations (33 Rural and 127 Urban). It essentially looks at three main parameters of the quality of power supply. These are: i) no supply hours, ii) number of interruptions, and, iii) evening hours of supply.

The report states that in April 2016, 46 per cent of the locations experienced power cuts of more than 15 hours. 24 per cent of the locations experienced 30 power cuts of more than fifteen minutes each. 16 per cent of the locations experienced an average 30 minutes of power cut in the evenings.

The one weakness with these figures is that most of the locations where the NGO is monitoring power cuts are in urban areas. The power situation in urban areas is much better than rural areas. Hence, to that extent these figures are not representative enough. The overall power cuts are likely to be much worse.

The following graph shows us how bad the power cuts are in the state of Uttar Pradesh. In the five locations that Prayas tracks in the state, there was no power for 418 hours on an average in April, 2016. This works out to around 17.4 days. Hence, there was no power in the rural areas of Uttar Pradesh, for more than half of April, as per the Prayas report.

Interestingly, Bihar did much better than Uttar Pradesh and had no power for only 7.5 days during the course of the month.

While this data is not definitive, it does tell us that power cuts are still the norm in large parts of India. This despite the fact that the country now has surplus power.

As the Load Generation Balance Report 2016-2017 points out: “The country is likely to experience the energy surplus of 1.1% and peak surplus of 2.6%. Statewise power supply position shows that almost half of the states would be either surplus or balanced.”

In fact, when the report was first published these lines got splashed across the media. The caveats that came after these lines were largely ignored. Let me point them out here: “Surplus energy is anticipated of the order of 3.3% and 6.9% in the Southern and Western Regions respectively. Northern, Eastern and North-Eastern regions are likely to face energy shortage of 1.8%, 10.3% and 8.3% respectively. The peaking shortages are likely to prevail mainly in the Northern, Southern and North-Eastern Regions to the tune of 1.6%, 10.0% and 3.8% respectively.”

Hence, the entire country will not have a power surplus in 2016-2017. Only the Southern and Western parts of the country will have a surplus. The Norther, Eastern and North-Eastern regions will see deficits. In fact, even within regions there is a huge variation. Like in the Northern Region, Uttar Pradesh is likely to see a deficit of 9.7 per cent. Jammu and Kashmir is likely to see a deficit of 15.8 per cent. In comparison, Haryana and Himachal Pradesh are likely to see a surplus of 7.9 per cent and 3.5 per cent, respectively.

In the Eastern region, Bihar and Jharkhand are likely to see a deficit of 18.4 per cent and 7.2 per cent, respectively. The power deficit states need to buy power from the power surplus states, in order to ensure that there are no power cuts.

As Load Generation Balance Report points out: “The remaining states would face both peaking and energy shortages in varying degrees during 2016-17. However, the actual shortage in a state would depend on the extent to which the state is able to get additional power from the surplus states.”

Hence, states that have a power deficit need to buy power from states that have a power surplus, in order to ensure that there are no power cuts. In order to do this, they need to have money. Let’s take the case of Uttar Pradesh. The government run electricity business in Uttar Pradesh suffered losses of Rs 17,678 crore in 2013-2014 (the latest number I could find). Given that, the state has no money to buy surplus power that is available in the country as a whole.

Further, the state had aggregate technical and commercial losses of 24.65 per cent in 2013-2014. This basically means that a major portion of the power that is used is not paid for. This, further means that the state loses money on any extra electricity that it buys and supplies. Hence, if it wants to limit its losses, then it is better off not buying any surplus electricity that is available from other states.

As the power minister Piyush Goyal lamented in June 2016: “We’re selling power for Rs 3.70 per unit to Uttar Pradesh…What can I do if UP does not buy power?” In comparison, the union government used to sell power at Rs 10 per unit earlier, Goyal had said.

What is true about Uttar Pradesh is true for several other states which incur huge losses every year and have huge accumulated losses as well. This explains why even though India has a power surplus, power cuts still continue to be the norm in large parts of the country. Also, this is a mess which will not be easy to sort out. I will continue dealing with this issue in the days to come.

The column originally appeared in Vivek Kaul’s Diary on July 27, 2016

Why is Arvind Panagariya Cherry Picking Data to Show Modi Govt in Good Light?


The Narendra Modi government will be completing two years next week. Given this, currently there is a lot of propaganda on. The finance minister Arun Jaitley has been giving interviews highlighting the good performance of the government.

The Vice Chairman of NITI Aayog, economist Arvind Panagariya, has also been writing columns in newspapers talking about the good show of the Modi government. There is nothing wrong with this. It is the right of every government to highlight what it thinks is the good work that it has done, in the best possible way.

And as long as governments don’t place full page advertisements in newspapers, highlighting their achievements by wasting taxpayer’s money, I have nothing against the entire idea of the government talking about its good work. Please talk about it as much as you want to, but don’t waste my taxes in the process.

One of the points that Panagariya made in a column in the Business Standard was about village electrification. The general impression is that the government has done good work on this front.

As he wrote: “In power, the government has already electrified 6,816 villages in the last two years compared with 5,189 villages in the three years before that.”

Take a look at the following table. It gives the number of villages electrified every year, over the last decade.


YearsVillages electrified
2015-2016                                        7128*
Source: Annual Report Rural Electrification Corporation 2014-2015
* Press release put out by Press Information Bureau dated April 4, 2016


Let’s run the numbers for what Panagariya said. In the last two years 8,533 villages (7128 villages in 2015-2016 and 1405 villages in 2014-2015) have been electrified. Panagariya says 6,866 villages. In the three years before that 11,718 villages were electrified (1197 in 2013-2014, 2587 in 2012-2013 and 7934 in 2011-2012) which is more than the villages electrified in the last two years and not less as Pangariya suggests.

So where did Panagariya get his numbers from? I think he has gotten the years mixed up while making the calculation. In the years 2012-2013, 2013-2014 and 2014-2015, a total of 5,189 villages were electrified. This is the same as Panagariya’s number. But Panagariya has essentially suggested years 2011-2012, 2012-2013 and 2013-2014. This is incorrect.

I guess basically what he wanted to compare was the performance of the government on the village electrification front in 2015-2016, with that of previous three years, i.e. 2012-2013, 2013-2014 and 2014-2015. In 2015-2016, the government electrified 7128 villages, which is close to the 6,816 number that Panagariya offers, for the last two years. This difference could be primarily because end of the year data keeps getting updated I guess.

The Modi government has put up a decent show as far village electrification in 2015-2016 is concerned. More villages were electrified in 2015-2016, than were electrified in the three years before that. This is what Panagariya I guess wanted to say. But he got the years mixed up.

Nevertheless, let’s look at the performance on the village electrification front between 2005-2006 and 2011-2012. In each of the years more villages were electrified than in 2015-2016. In 2005-2006, 28,706 villages were electrified, which is four times the number last year. Hence, Panagariya is essentially cherry-picked data in order to show the Modi government and the power minister Piyush Goyal in good light.

Also, as I have mentioned in the past, if we keep comparing the economic performance of the Modi government to the second half of the second term of the Manmohan Singh government, things are definitely going to look better. Nevertheless, that is too low a benchmark to set. Anything will look better in comparison to those years.

Further, during the year 2014-2015, the Modi government governed for to ten months. During the course of the year only 1,405 villages were electrified. This can’t be totally held against the government because every government needs time to start operating. Also, given the fact that the number of villages electrified in 2012-2013 and 2013-2014 were very low, some time would have been needed to get the system going again.

It needs to be mentioned here that as the number of villages to be electrified comes down, it becomes more and more difficult to electrify the villages and the same pace cannot be maintained. If one takes this factor into account, electrifying more than 7,000 villages in a single year, is not a bad performance.

But trying to pass it off as something extraordinary is really not done.

Discslosure: The basic idea for this column came after reading Amitabh Dubey’s column Arvind Panagariya Spins an Infrastructure Tale on Chunauti.org

The column was originally published in the Vivek Kaul Diary on Equitymaster.com

Revealed: The real reason why Coal India unions were on a strike

Late yesterday evening, the trade unions representing Coal India workers
called off their five day strike. “Consequent to the intervention by Mr Piyush Goyal, Union Miinister for Coal, strike by Coal India workers called off,” Coal secretary Anil Swarup said on Twitter.
The meeting of the trade unions with the coal minister Piyush Goyal lasted for over six hours. “The strike has been called off,” Lakhan Lal Mahato, leader of All India Trade Union Congress (AITUC), one of the five trade unions supporting the strike
told the Press Trust of India (PTI) after the strike was called off. “Mahato, however, did not share the details of the terms and conditions of the agreement reached between the government and the unions,” PTI reported. The real damage of this agreement (if any) will be revealed only once the details of the compromise agreed upon come out.
The strike lasted two days and led to a dramatic fall in coal production.
A Reuters report quotes a Coal India official as saying that “Coal India produced 645,000 tonnes on Tuesday (January 6,2015), less than half of its usual daily output at this time of year.”
The unions were protesting the government’s decision to disinvest its shares in Coal India and at the same time they don’t want any private participation in the coal sector in the country.
The government wants to sell 10% of its stake in Coal India, which will help the government bring down the fiscal deficit. The fiscal deficit for the period April to November 2014 was at 99% of the annual target. Fiscal deficit is the difference between what a country earns and what it spends.
The government currently owns 89.65% of Coal India and even after selling a 10% stake it will continue to own almost 80% of the company, which is good enough to continue to have managerial control over the company. Hence, the government is not selling out of the company lock, stock and barrel.
Coal India was and will continue to be a government owned company. So what is it that the trade unions really feared? For that one needs to take a look at the following table.

Coal India


Total employee benefits expenses (in Rs crore)

Number of employees

Average employee compensation




Rs 5.09 lakh




Rs 6.99 lakh




Rs 7.49 lakh




Rs 7.88 lakh

Source: Coal India Annual Report 2013-2014

As is clear from the above table the average employee compensation for Coal India has gone up from Rs 5.09 lakh in 2010-2011 to Rs 7.88 lakh in 2013-2014, an increase of 55%. What needs to be kept in mind is the fact that 85% of the employees of Coal India are workmen. Their jobs fall largely in the semi-skilled category.
In yesterday’s column I had said that the well performing subsidiaries of Coal India, like Mahanadi Coalfields and Northern Coalfields have been doing well primarily because they have been outsourcing the excavation of coal. Interestingly, coal experts point out that the firms to which the excavation of coal is outsourced hire workers at around one fourth the cost of what Coal India employees get paid. And that makes the entire exercise of excavating coal through outsourcing more productive. What this tells us clearly is that Coal India employees are paid extremely well.
Now look at the following table which has the average employee compensation of ICICI Bank over the years.



Total employee benefits expenses (in Rs crore)

Number of employees

Average employee compensation




Rs 4.94 lakh




Rs 6.03 lakh




Rs 6.27 lakh




Rs 5.84 lakh

Source: ICICI Bank annual reports

ICICI Bank is the largest private sector bank in the country (in terms of total assets). It has more or less a 100% skilled workforce. Nevertheless, the average employee compensation of the bank in 2013-2014 was only at Rs 5.84 lakh.
Hence, an average Coal India employee makes 35% more than an average ICICI Bank employee. This is surprising given that Coal India has a largely a semi-skilled workforce. As on December 1, 2014, out of a total workforce of around 3.38 lakh, the total number of workmen were at 2.86 lakh. And these Coal India employees get paid significantly more than they should be, given the skill-set that they have.
The trade unions are essentially trying to protect this. Their big fear is that if private companies are allowed to commercially mine coal (as the recently re-promulgated Coal Mines (Special Provisions) Ordinance allows for), salaries in the organised coal sector will go down. Private companies will have no reason to pay the kind of compensation that Coal India pays its workers. As mentioned above outsourced workers get paid one fourth of what Coal India workers make. Hence, trade unions are basically trying to protect this interest of the organised coal labour.
In the process they are hurting the interests of the country. Coal India produced 323.58 million tonnes of coal in 2004-2005. In 2013-2014, it produced 462.42 million tonnes of coal. The rate of production has increased at an average annual rate of 4.05%. The production of coal hasn’t kept pace with demand. During the same period, the total amount of coal imports has increased from 28.95 million tonnes to 171 million tonnes, at an average annual rate of 21.8%.
The per employee productivity of Coal India is very low in comparison to its global peers. A Reuters news-report points out that: “Coal India digs out about 1,100 tonnes of coal per employee a year, compared with 36,700 tonnes per employee at U.S.-based Peabody Energy and 12,700 tonnes per employee at China’s Shenhua Energy.” What Coal India needs is some competition and that is exactly what allowing private companies to commercially mine coal will do.
As Partha Bhattacharya, a former Chairman of Coal India put it
in a September 2014 column in The Indian Express: “With multiple players that have both bandwidth and competence, a competitive scenario is expected to emerge sooner than later. Besides turning the current situation of acute coal shortage into one of abundance, competitive pressures are expected to bring prices well below the imported coal price, since the wage cost is likely to remain far lower in India than elsewhere, whereas productivity is expected to converge to international levels.”
To conclude, India clearly needs more coal. And that is only going to be possible if more companies are allowed to produce coal. But the labour unions representing the workers of Coal India do not want that. In the process the country needs to import coal at a price which is higher than the price of the coal produced domestically. Also, the country ends up using precious foreign exchange.
In fact, if India does not produce more coal in the years to come, the coal imports will only go up.
What does that really mean? It means that increasing Indian coal imports will help create jobs in foreign countries. Ultimately, the unions representing the workers of Coal India will be responsible for this. And this is clearly not a happy thought.

The column originally appeared on www.equitymaster.com as a part of The Daily Reckoning on January 8, 2015