Gigantic Power Failure Affected 620 Million Indians – The Worst Blackout In History – Time For India’s Policy Makers To Get Serious About Pro-Development Policies, Starting With New Infrastructure And Modern Regulations

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By Paolo von Schirach

Related stories:

http://schirachreport.com/index.php/2012/06/04/india-stopped-growing-political-paralysis-inefficient-services-impede-investments-the-indian-poor-will-stay-poor-for-much-longer/

http://schirachreport.com/index.php/2011/12/19/india-will-not-liberalise-retailing-country-will-keep-ancient-food-distribution-system-failure-to-carry-out-this-and-other-needed-reforms-may-doom-growth/

http://schirachreport.com/index.php/2011/12/03/not-so-modern-india-country-choked-by-political-gridlock-corruption-and-vast-inefficiencies-very-low-132-world-bank-doing-business-score-opposition-to-recent-decision-to-let-in-internatio/

July 31, 2012

WASHINGTON – Power blackouts do occur, even in supposedly super modern countries. think of the 2003 massive power failure that affected the US North East. But what has just happened in India is probably the worst power failure in all of human history, certainly the worst in Indian history.

370 million, then 620 million without power

On Monday 370 million Indians were affected. (That is the equivalent of the entire population of the US and Canada). It appears that this was due to some states going deliberately above their allocated “quotas”, therefore upsetting a huge part of the grid. But on Tuesday it got worse. 620 million without power. That’s about half the population of India.

In a US context, imagine 150 million people in America without power for a couple of days. And what’s worse, at least right after the second and larger blackout officials were clueless as to what caused it.

Mix of bad policies and arbitrary regulations

I have expressed my doubts about the resilience of India’s economic growth. (See above for links to earlier pieces). This epic catastrophe unfortunately highlights the cumulative failures of a country that, despite its many talented people, really cannot get its act together. News stories have tried to explain how electricity is generated and distributed in India. Reading them it is almost impossible to comprehend how a system so convoluted, so messy and so anti-economic has survived until now.

All wrong, nicely mixed up

You have everything that should not be done in order to encourage investments in this vital sector, essential to provide power to a developing nation whose growth largely depends on reliable electricity. There are major issues at every level. There is political uncertainty and consequent policy confusion, arbitrary regulations on coal mining that starve coal fired plants, prohibitions, mandates, political prices for some categories, subsidies for others, a bad mix of public and private ownership, poor oversight and corruption.

All this delayed needed investments; and so you have outdated systems prone to failure. To top it all off, many Indians steal power, (some estimates indicate that up to 40% is syphoned off the grid), while others who get it free of charge resell it (illegally) to industries or other users. Given this mess and the size of the country, quite honestly one wonders why major disruptions do not occur more often.

Back up systems reduced the impact

The silver lining here is that most Indians are used to frequent power failures. (For more than 300 million power failures large or small make no difference, as they have no power to begin with). For this reason most factories, airports and private businesses have their own independent back up generators. When the big outages occurred Monday and Tuesday factories turned on their generators and continued working. Hardly ideal, but back up systems reduced the amount of disruption; even though some factories got into trouble because most generators cannot run for more than a few hours without refueling. Still, even with back up systems in place, hundreds of millions were affected. Gigantic traffic jams were caused by non functioning traffic lights. Trains were not working, and so on.

Will this be a wake-up call for India?

Be that as it may, when we go past the huge domestic damage and the international embarrassment, it would be good if some Indian policy-makers would grab this catastrophe as an opportunity to start a new course towards real modernization. And modernization has to begin with an agreed upon master plan for major infrastructure upgrades, first and foremost power generation and distribution. But in the case of electricity it is impossible to induce the private sector and/or multinational corporations to invest, because of the system of subsidies and quotas that make it impossible for most to make money generating power. Therefore streamlined regulations that would include real economic incentives have to precede new projects.

Talented Indians cannot work in this environment

There is no question that there are plenty of truly talented people in India. Many Indians who emigrated to the US, Canada and elsewhere have done extremely well as scientist, business people and managers. But the smart people who stay in India cannot possibly operate at full speed in a country so poorly organized, with a sorry blend of adversarial politics, ancient systems, absurd regulations and rampant corruption.

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