The power sector is one of the most mismanaged and convoluted in India; Arvind put some effort into finding a solution for its ills. For decades, state electricity boards underinvested, and there was persistent shortage of power. Those days are over; captive power generation by industry and entry of private power producers have more or less eliminated capacity shortage. But the cost and quality of power supply continue to be suboptimal; the average price of electricity in India is about the highest amongst major countries. It is roughly seven times the cost in efficient power industries such as those of Australia or Switzerland. Indian industry produces almost as much power for itself, generally at a high cost, as it buys from state utilities to make sure that its factories continue to run without interruption. Private distribution companies were created in the hope that they would create competition amongst generators and bring down the costs. That did not happen; instead, the discoms went bankrupt because government power utilities took power from them and refused to pay them. Power generators and distributors borrowed from banks, so they are a major cause of banks’ bad debts. States’ cross-subsidies create dozens of prices; Arvind gives an example of a state (which he does not name) with 88 different prices.

The mess is impossible to clean up, but Arvind was never one to give up. His remedy is as follows. First, the current proliferation of power tariffs must be proscribed; the Centre should introduce a single national price, and states should be allowed to have no more than five different prices. Second, generators and distributors must be made to publish all their statistics without delay, and they must be placed on a single website. Third, states’ cross-subsidy surcharge must be abolished; they can subsidize whomever they want, but they must do so out of their own revenue. (Incidentally, Arvind is not against power cross-subsidies; in fact, he says that Indian cross-subsidies are too low, compared with other countries.) Fourth, renewables are getting cheaper; solar power is already competitive with thermal power. But thermal power plants cannot be closed down overnight without huge losses and bad debts; hence thermal power must be protected for the next decade. Fifth, the industry is too volatile; the long-term contracts that discoms have entered into will land them in trouble. Hence they must be allowed to renegotiate and shorten contracts. Sixth, electricity should be brought under goods and services tax, and the resulting revenue should be used to reduce taxes on industry.

These are the main points of Arvind’s long and complicated prescription for electricity. As I went through it, I thought that this was one of the areas in which his analysis could be improved. He is an excellent economist, and he has showered good economics on all Indians except the well-sheltered finance ministry. But even he is not perfect; his solutions can be improved by energetic debate amongst good economists. He has done his job as policymaker. He should now set up a talking shop of economists; he should call their meetings in India during his university vacations. Their talks should be backed up by good background analysis, for which he can employ his army of youth. He has his job cut out for him.