Open access to success
The bold Make in India initiative intends to transform India into a global manufacturing hub. The government launched the programme to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build a best-in-class manufacturing infrastructure in the country. The success of the initiative will be determined by the growth of the power sector; to that end, the government has taken multiple initiatives related to Foreign Direct Investment (FDI) and provided for fiscal incentives and infrastructure development in that industry.
Maharashtra emulated the Make in India campaign by launching the Make in Maharashtra initiative to attract capital investment and give impetus to its industrial growth. But it is access to affordable power, which in turn stimulates manufacturing output and drives capital investments, that will be vital to determining the success of the Maharashtra initiative. Although Maharashtra has witnessed some positive momentum in the power sector over the past few years, high industrial tariffs still plague the manufacturing sector. State discom tariffs on industrial power have increased by about 10 per cent annually over the past five years. At the same time, prices in the power market, especially power exchanges like IEX, declined by about 8 per cent. But the nub of the problem is that access to such alternative sources of power is constrained in Maharashtra.
Open access provides industries alternative sources of power and fosters healthy competition in the power market. The Maharashtra Electricity Regulatory Commission (MERC) has been at the forefront of progressive reforms, particularly those related to open access. MERC published regulations in mid-2016 to liberalise open access in the state by allowing power procurement from multiple sources, including power exchanges, and has since published multiple clarifying directives to further enable this approach.
However, much remains to be done to provide customers access to cheap, reliable power. Mechanisms set up by the state discom have prevented industrial customers from availing themselves of power through open access. Though it was introduced in the electricity act of 2003, Maharashtra has yet to allow unfettered open access to industrial customers. Resultantly, states like Maharashtra have potentially lost billions in GDP.

Maharashtra lags behind Rajasthan, Uttarakhand, Gujarat, Haryana and Tamil Nadu in the growth of industrial output. The growth in industrial power consumption in Maharashtra has been the lowest among key states in India, whereas rapidly increasing industrial tariffs are among the highest. Many prominent industrial associations have highlighted high tariffs and limited recourse to alternative sources of power as bottlenecks to industrial growth and impediments to their investment appetite for the state.
Provisions exist within the regulations to ensure that the state discoms are sufficiently compensated for any loss of revenues from industrial customers. This compensation is meant to occur through additional surcharges and subsidy charges on power procured through open access. However, such regulations haven’t stopped the Maharashtra discom’s strong clampdown on open access usage. On the other hand, peer states have both taken advantage of open access to enable robust industrial growth and increased discom revenues. For example, as open access regulations were relaxed in Haryana, the state’s industrial growth reached more than four times that of India’s.
More than 3,500 industrial customers procure power through exchanges in India, yet few such customers do so in Maharashtra. Current open access transactions in Maharashtra are far below the national average, in spite of the state having the largest industrial power consumption in the country.
Overall, for Make in India to succeed, large states such as Maharashtra need to be able to increase manufacturing output and attract investments. It is imperative that large customers, the “makers” and wielders, as it were, of economic power, be allowed unfettered open access within the prevailing construct of regulations so that they get the opportunity to make the most economical choice.
Amit Sinha is a partner and Parijat Jain is a principal in Bain & Company, New Delhi
Tags: