India's economy has expanded more than 8.5 per cent annually over the past four years, but a widening gap between the demand and supply of electricity threatens to derail the country's growth. The power sector in the country is by and large run by state governments, which have been slow in adding new capacities due to a lack of funds. Although the sector was opened to private capital more than a decade ago, few companies have invested in building new plants because of regulatory bottlenecks.

It is estimated during peak hours, demand outstrips supply by as much as 25 per cent in some parts of the country, causing frequent outages and coercing shutdowns at factories and businesses. To deal with the issue, there is a need to build hundreds of new power plants over the next five years to end the massive electricity shortages.

The Eleventh Plan can be the perfect juncture to give power sector a right swing. The National Development Council has mandated that the Eleventh Five Year Plan should aim at the twin objective of achieving faster and more inclusive growth. Under the plan, the Government has set a target of around 78,000 MW of additional capacity. Both these objectives require a massive improvement in the situation facing the power sector.

However, the report card of the previous plan makes it look oblique. In the Tenth Plan period, against a target of adding 41,000 MW, the country's actual achievement was only a little over 21,000 MW. Nonetheless, the task of adding 78,000 MW, even including the spillover capacity of 11,000 MW is a tall order. The background papers indicate that nearly 49,000 MW of capacity is currently in the process of being implemented. It is estimated that with a determined effort, orders could be placed for another 29,000 MW by the end of December. Both the Centre and the States must give the highest priority to ensuring that these orders are indeed placed.

It is also necessary to ensure that these projects, once underway, are actually completed on time. Power projects are very often held up for want of coal linkages and environmental clearances which are beyond the purview of state governments. Some mechanism of inter-governmental consultation is essential to accelerate resolution of these bugbears.

Apart from adding new plants, the state governments have to take measures to prevent high losses during transmission and distribution, which also include theft of electricity. The current growth target certainly requires a much faster increase in supply of electricity with much less dependence on high cost captive power.

The task of expanding generation capacity by 78,000 MW is not only managerially tough; it also presents a financing challenge. The cost of creating generation capacity on this scale is about Rs 3.5 trillion. Applying the general rule that for every rupee spent in generation it is necessary to spend the same amount on transmission and generation, the total investment required in the power sector in the Eleventh Plan to operationalise the targeted additional capacity would have to be over Rs 7 trillion. The country also needs to provide for the massive backlog in investment in distribution because of neglect of this sector in the past. Without such investment it will not be possible to achieve improvements in quality of power and loss reduction for the existing system.