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A file photo of Arvind Subramanian
A file photo of Arvind Subramanian

Fixing power sector stress and economic recovery interlinked: Arvind Subramanian

Arvind Subramanian said that reviving the power sector, saddled with loss making distribution utilities and generation companies unable to use full capacity, will depend a lot on the broader economic recovery

Resolving the stress in the power sector, improving the health of the financial system and the economic recovery are inter-connected, according to former chief economic advisor Arvind Subramanian.

Speaking at a webinar on the future of electricity organised by Centre for Policy Research (CPR), a think tank, Subramanian said that reviving the power sector, saddled with loss making distribution utilities and generation companies unable to use full capacity, will depend a lot on the broader economic recovery.

“Boosting recovery and economic activity is a sine qua non for anything to do with reviving the power sector… In order for the (economic recovery), the financial system needs to be fixed. Part of fixing the financial system has to be fixing the non-performing assets in the power sector," Subramanian told industry experts.

Subramanian, who is also a professor at the Ashoka University and founding director of Ashoka Centre for Economic Policy, told experts that renewable energy firms should be realistic and honest about their sustainability and natural gas should be a part of India’s transition to a low carbon economy.

Subramanian cautioned against renewable energy boosterism and suggested that one needs to look harder into the sustainability of the clean energy sector, which relies on subsidies and import of cheap components from China.

“I think at this stage, the sustainability of the sector depends on a lot of subsidies…If it (this sector) is going to require support, let us be explicit about it," Subramanian said.

He suggested that it was imperative for the sector to make an honest assessment of its sustainability so that the cost of having renewable energy over fossil fuels is known upfront for decision making. “While I buy the broader trajectory (towards more renewable energy use), let us be careful about coal vs renewable.. Let us think very hard about the sustainability of the sector," Subramanian said.

India is committed to depending on renewables for 40% of its energy needs by 2030. Subramanian also said that credibility of power distribution companies’ accounting and simplicity in power tariff fixing were also important.

The economic slowdown that gripped India over the last few years and the coronavirus crisis have depressed energy consumption, considered a proxy for living standard.

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