Paradoxical Performance – Indian Power Sector in need of interventions

Abstract

The Indian Power Sector responded positively to the policy reforms initiated in 1991 in the economic and industrial sectoral domains. The opening up of the power sector witnessed immediate interest and caused almost a gold rush kind of situation. Though the enthusiastic entry happened in tranches that are separated by settling period, overall the sectoral firms demonstrated fair surviving and growth over the last two decades. The sector witnessed aggressive capacity addition over the recent decade to meet the projected requirements for making power accessible to all, a national aspiration. However, the sector grew based on increased leverage and the assets created were not being fully utilised. This resulted in a sharp rise in risk for sectoral stakeholders. This study examines the performance of the power sector using data from the recent decade of companies forming this sector. The study highlights that the sector is stressed and stakeholders are at risk.  Observations of poor asset utilization, stagnant profitability, and large amount of work-in-the-pipeline don’t augur well for any sector. As a result, the power sector has declined in terms of investment preference. However, for investments that are already committed, there is a dire need of value recovery. Sustainability of the sector can be ensured by completing the pending pipeline of projects, operating commissioned assets with efficiency, managing costs well and mitigating fuel uncertainties. With an increase in leverage over the period, financiers’ exposure to this sector is also a matter of concern. These issues need to be addressed along with mitigation of identified risks to improve economic performance. Power is a core sector with cascading benefits. It propels the economy and drives the national growth. Hence, the power sector requires immediate attention and follow-up in terms of policy interventions and successful execution.Read Full Article