India's Planning Commission Sets Additional Power Generating Capacity Target of 20,359 Megawatts for 2010-11

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Researched by Industrial Info Resources (Sugar Land, Texas)--Montek Singh Ahluwalia, the deputy chairman of the Planning Commission of India, has announced that an additional power generating capacity target of 20,359 megawatts (MW) has been set for this fiscal year. Ahluwalia expressed confidence that the new target would assist in augmenting national and state infrastructure, and help to bridge the electricity demand-supply gap. However, industry experts have observed that the additional electricity-generating capacity target seems ambitious in the background of India's inability to meet the last financial year's scaled-down targets.

In 2009-10, against a target of 14,507 MW, the country succeeded in adding only 9,585 MW of generating capacity. Of the 20,359 MW of planned addition this fiscal year, 4,126.5 MW, 4,831.5 MW, 4,709.5 MW and 6,691.5 MW is expected to be added in the first, second, third and fourth quarters, respectively.

In 2010-11, the federal government is expected to contribute about 7,639 MW toward the newly targeted power generating capacity. This will be completed in a phased manner, with the addition of 2,115 MW in the second quarter, followed by 2,070 MW and 3,453 MW in the third and fourth quarters, respectively. During this period, the state governments are expected to develop 6,609.5 MW of generating capacity. According to Planning Commission sources, the state energy utilities will add 1,627 MW in the first quarter and 1,437.5 MW, 1,850 MW and 1,695 MW in the following three quarters, respectively.

As part of the rural electrification scheme, the Planning Commission has retained the annual target of connecting 17,500 villages to the grid. Last fiscal year, 18,374 villages were given access to power, which helped the country exceed its target of 17,500 villages. This fiscal year, about 4,000 and 3,500 villages are expected to be covered under the scheme in the first and second quarter, respectively. In the third and fourth quarters, the rural electrification scheme plans to connect 4,500 and 5,000 villages, respectively.

In a related development, the Planning Commission has forecast that India may spend about $500 billion to augment its infrastructure through March 2012. Investments have been planned for roads, highways, airports, railways, power and ports. These investments are critical for India to sustain its economic development as Asia's third-largest economy. However, experts have observed that bureaucracy, red tape, funding issues and land acquisition problems are hampering development. The country's weakly developed bond market is the biggest hurdle in obtaining financing for infrastructure projects. Resistance from villagers, environmental activists, land availability and an archaic legal system have stalled several large projects. Ahluwalia also indicated that the private sector will play a very important role in the development of India's infrastructure, especially airports, power plants and roads. During 2007-12, the private sector is estimated to invest nearly 40% of the total expenditure outlay.

In its effort to resolve the issue, the Indian government, with assistance from the Planning Commission, has proposed to set up an $11 billion infrastructure development fund. About $4.4 billion for this fund is likely to come from overseas wealth funds, insurance and pension schemes. The remainder will be generated from the domestic market. Industry experts have observed that implementation and availability of financing from the infrastructure fund is critical. Earlier, Citigroup Incorporated (NYSE:C) (New York), Infrastructure Development and Finance Company Limited (BSE:532659) (IDFC) (Chennai, Tamil Nadu) and The Blackstone Group LP (NYSE:BX) (New York) announced a $5 billion fund to expedite development of infrastructure in India. However, the fund failed to take off.

This fiscal year, India is forecast to record economic growth of about 8.5%. According to the recently published report by global consulting firm McKinsey & Company (New York), India's urban infrastructure will have to be beefed up considerably to sustain economic growth. By 2030, about $2.2 trillion may have to be invested on city infrastructure in the country. Further, the report elaborates that India's per capita investment on city infrastructure is about $17, which is only 15% of China's per capita investment on urban infrastructure.

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