Better governance, better power delivery

Electricity distribution companies are more efficient and perform better in states with stronger institutions, finds a study

Shijith Kunhitty
First Published9 Mar 2021, 11:46 AM IST
Power distribution companies have so far been the weakest link in the electricity value chain. reuters
Power distribution companies have so far been the weakest link in the electricity value chain. reuters

Electricity distribution in India is in bad shape, with many places having poor voltage and frequent interruptions in supply. In general, delivery of energy is inefficient, and distributing power costs more than it ideally should. But a study finds this inefficiency is lower, and distribution companies (discoms) perform better, in states with stronger governance and institutions.

The study, led by Tooraj Jamasb of the Copenhagen School of Energy Infrastructure, uses data on discoms in 24 states from 2006-07 to 2011-12. To measure the quality of governance, the study uses the number of times a state was under President’s rule, and the number of times a coalition government was in power. A state’s ability to provide goods and services was measured through the ratio of surfaced road length to total road length. The government’s involvement in the state’s economy was measured through public expenditure as a percentage of economic output.

The study finds a link between the performance of discoms and the number of times a coalition has been in power. An explanation is that making decisions takes longer in coalitions and policies don’t get enough time to be implemented, resulting in inefficient management. Higher public expenditure also has a beneficial effect on how discoms perform. Other indicators related to institutions and governance were found to be insignificant.

The study also simulates what improvements in these indicators would mean for distribution companies in concrete terms. The authors find that fewer coalitions and higher public expenditure could potentially lead to a state saving 8.7% on distribution costs on average. Cost savings range from 5% for Goa to 31.6% for Jharkhand. In 2011 dollar terms, this would mean the country saving around $8 billion over five years.

Also read: “Institutions and performance of regulated firms: Evidence from electricity distribution in India

Snap Fact features new and interesting reads from the world of research.

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First Published:9 Mar 2021, 11:46 AM IST
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