Modi's Economics: Strengthening The Core

Modi’s Economics: Coal & Electricity

The passion that Narendra Modi brings to the task of nation building and engendering prosperity as prime minister elect is both extraordinary and formidable. He will build a modern India from the ground up, foundation to superstructure, so that it is built to last. Little information has leaked as to what exactly he is going to do as yet, whether it be in terms of the choice of his cabinet colleagues, or indeed, his economic initiatives.

The media space however is abuzz with suggestions and speculations. It is after all, so much easier to give gratuitous advice rather than actually execute a vision. But Modi must be used to it, receiving  torrents of advice and keeping his own counsel, both.

But there are clues. One is his abiding interest in providing 24x7 electricity to every nook and cranny in India. He has promised this many times during his election campaign. This electricity he promises is not only to provide domestic illumination, but drive the engines of commerce and industry in a failsafe manner. 

Something that has eluded the country as a whole throughout our history as an independent country, with even the capital New Delhi and the NCR suffering daily power cuts and ‘load shedding’. Gujarat however has ample power fuelling ample industry, and Modi wants to both keep it that way, and reach the remotest parts of the country too.

This is an activity to strengthen the core of the country. It means much more electricity generation must come about using India’s abundant, if substantially unmined reserves of inexpensive coal. PSU Coal India, under-capitalized, bureaucratically slow, lacking in expertise, has proved to be unequal to the task.

The Coalgate scandals of the UPA highlighted the incompetence with which some coal blocks were parceled out for a pittance to the highest bribe-givers from the private sector, but India continued to import massive quantities of expensive coal to keep generating electricity. The private coal blocks have not yielded any results either, because of other bottlenecks hampering and hindering the projects they were meant to fuel on a captive basis.

This scenario is due for a sea-change, probably with Modi personally driving it, and with the help of massive privatization cum modernisation of the mining processes. Modi will use tried and tested Indian private sector giants such as Tata, Reliance and Adani, amongst others, and the mining know-how supplied by their foreign collaborators.

If Modi decides to run the Coal Ministry himself he will certainly be able to deliver results in a time-bound manner. Reducing coal imports will reduce the burden on our foreign exchange reserves also and become a key component of increased GDP and reduced deficits. It might, with the generation of abundant electricity using cheaper coal, actually bring down the high costs of electricity at the retail level too.

The State Electricity Boards, many of them in a disgraceful state, will also have to be modernized and upgraded to cope with the extra electricity generated, and while they deal with their massive debts and inadequate infrastructure, their electricity subsidies to farmers in many instances, their political fall-outs etc. they may have to be supplemented by private, regionalized, even localized, electricity boards; to run in parallel in line with the American model. Privatised electricity, from generation to transmission to distribution, driven by efficiency and the profit motive, is definitely the shape of the future.

Gautam Adani, one of Modi’s favourite businessmen, famous for his success with the largely automated Mundra Port in the Rann  of Kutch, is  busy developing yet another private port in the East this time, recently bought over by him and being radically upgraded. Ports, roads, airports, telecommunications are all engines of growth, and linked to modern railways can transform the  possibilities in this country.

Railways then are another key thrust area to Modi’s economic vision, and may constitute another ministry he may have to keep to himself in the early part of his administration, long enough to initiate its massive reform into a modern transportation backbone fit for the 21^st century.

There are many other items that will be transformed by the Modi Government. Banking, for instance, crying out for capitalization and consolidation, groaning under serious bad-debt burdens. The national debt is crippling in itself and must be both curtailed and put to far more effective use.

But for the GDP to grow and ease the task, the enablers must be supported and set free first of all. This, through all the noise, may be at the nub of Modi’s economic thinking.

(756 words)

May 24^th, 2014

Gautam Mukherjee