India must look at ensuring steady power supply to households for the government's electrification drive to be truly successful, and merely adding new consumers to the electricity grid is not enough, a senior World Bankeconomist said.

“It’s very important that connected households receive adequate level of services because the size of the benefits of electrification depends on the reliability of electricity supply. Universal electrification without ensuring reliability is a wasted opportunity,” Fan Zhang, senior economist for the South Asia region at World Bank told ET on the sidelines of the launch of a report assessing the cost of power sector distortion in South Asia. 

The World Bank said in the report that India lost a whopping $86.1 billion, or about 4 per cent of its GDP because of distortions in the power sector in 2016. 

“The leading cost is the environmental and health damages from coal-based power generation. It has contributed to air pollution which is a hidden killer. If no actions are taken, and no reforms are taken, it is very likely (that this bill rises further),” Zhang added.

Estimated at 1.42 per cent of GDP per year, the impact of power shortages on downstream rural households and firms is the second largest economic cost for India, according to the World Bank.

“India achieved 100 percent village electrification in 2018. But at the household level, its rural access rate, at 81 percent in 2017, is still the third-lowest in South Asia,” the report added.

The Indian government plans to achieve universal household electrification under the Saubhagya scheme launched in 2017. Power minister R K Singh recently said that one lakh households are being added to the electricity grid every day under the scheme.

Although the power deficit has been substantially reduced over the last few years, the reliability of electricity is still low compared with the international standard-- the 2018 Global Competitiveness Report ranks India 80th among 137 economies in the reliability of its electricity supply.

The World Bank’s analysis using nightly satellite images from India for 2013 found that areas adjacent to newly electrified villages subsequently experienced worse power outages. “This means that there could be a trade-off between access and quality of supply,” Zhang said.

Zhang added that India should also look at increasing the environmental cess on coal, which will offset the health and environmental damages caused by coal-based power generation in India. This will also help in transition to renewable sources of energy, she said.

“The current environment tax on coal is not sufficient to overcome the social damages done by coal. By imposing full tax on coal, that will accelerate the transition to renewable energy and reduce coal consumption,” Zhang said.

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