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The success of Gujarat model: How Narendra Modi pioneered reforms to restructure the ailing power sector in Gujarat

The fascinating turnaround story of Gujarat's power sector over the last two decades, first under Narendra Modi and then under various other Chief Ministers is often cited as a model for power sector reforms in the country.

In early 2000, Gujarat’s power sector was in shambles just as any other state in the country. The villages and the cities barely had access to a continued supply of electricity. A decade later, Gujarat ensured that its 18,000 villages and 9,700 hamlets had access to the round-the-clock three-phase power supply.

The fascinating turnaround story of Gujarat’s power sector over the last two decades, first under Narendra Modi and then under various other Chief Ministers, is often cited as a model for power sector reforms in the country. Today, Gujarat has more power than it needs, with low tariffs and an uninterrupted power supply.

So how did the turnaround really happen? Here is the story:

Before 2001, electricity in a rural village was a rare commodity. The state’s electricity sector was loss-making as it was riddled with extreme inefficiencies and corruption. When Narendra Damodardas Modi took over as chief minister of Gujarat in October 2001, he found the state’s power situation grim. The Gujarat State Electricity Board, or GSEB, was in deep distress with a mounting loss of over Rs.2,200 crore in 2001. The GSEB paid interest costs of about Rs 1,227 crore in the fiscal year.

In addition to that, the transmission and distribution losses were as high as 35.27 per cent, and load shedding was a frequent phenomenon. The GSEB was also suffering from a fund crunch to produce its own power, and it could not persuade the private sector to invest in the state.

Several issues, such as power generation problems, higher fuel cost, mounting losses, and loss of power to unmetered supply, had plagued the Gujarat power sector. However, in his first term as the Chief Minister, Modi took up the challenges and initiated a series of reforms to revive the state’s power sector.

Holistic reforms in Gujarat’s power sector

The then Chief Minister Modi’s first major decision was to appoint Manjula Subramaniam, a joint secretary in the prime minister’s office, as the Chairperson of GSEB and Principal Secretary, Energy and Power. Soon, the officer was authorised with full powers needed to tackle the crisis that had hit the state. Manjula Subramaniam initially concentrated on two areas: reinforcing the power utility’s finances and raising employee morale. 

At first, a debt restructuring initiative was taken up, by which banks and financial institutions were persuaded to lower their interest rates. Next, the GSEB renegotiated the power purchase agreements or PPAs signed with private players and brought down the rates for power procurement, which resulted in savings of Rs. 500 crore in the next year and another Rs.1,000 crore in the next.

Following year, the Modi government began to plug the leakages in the distribution sector by acting on power thefts in Gujarat that ranged between 20 per cent in urban areas and 70 per cent in rural regions. The government passed a law against power thefts and set up five police stations across the state to act on power thieves. The government acted strictly on firms with large pending bills, including disconnecting their supply if they failed to clear the arrears.

In rural areas, unmetered power supply was stopped altogether. As the tariff for power used for agricultural purposes was much lower, many stole from this subsidised supply for their household needs as well, resulting in huge losses for GSEB. To tackle this, the GSEB joined hands with the Asian Development Bank to fund the installing of meters.

Jyoti Gram Yojna – the flagship scheme of Gujarat government

One of the most important reforms introduced was to separate the feeder line that supplied power to the rural areas into two. The supply power for agricultural needs and non-agricultural usage for the household was differentiated. This was part of the Jyoti Gram Yojna, a scheme Modi announced in 2003 to supply round-the-clock power to villages. The success of the scheme was such that after Narendra Modi was elected as the Prime Minister, the scheme was scaled up at the national level as “Deen Dayal Upadhyaya Gram Jyoti Yojana”.

The Jyoti Gram Yojana (JGY) was launched in September 2003 to provide three-phase round-the-clock quality power to domestic and commercial users of villages and their hamlets.

Under the scheme, a parallel rural distribution network of 78,454 km of new lines, 2,257 JGY feeders, 18,724 new transformer centres and 4,530 special design transformers were set up. The JGY controlled power theft and losses, thus freeing the distribution companies from suffering major financial losses. The financial health of these Discoms became better year-after-year.

Continuing, in May 2003, the Gujarat government also passed the Gujarat Electricity Industry (Reform and Reorganisation) Act, which divided the GSEB into a holding company, a power generation company, a power transmission company and four distribution companies to bring better management and efficient operations.

Thinking ahead of its time, the Modi government had also set up a state electricity regulator – a first in the country. The regulator was made truly independent of political pressures, thus giving them the freedom to revise power tariffs every year to avoid any losses to the exchequer.

Another lowkey reform, but that had a tangible outcome on the restructuring of the state’s power sector was restoring the employees’ confidence. Manjula Subramaniam was tasked to understand the concerns of many employees, who had feared for their job loss due to the widespread reforms. The GSEB reached out to the employees and started training programmes at all levels to skill them for redeployment. The state government ensured that no one was laid off. The success was evident within weeks, as now employees took more interest in reforms, and they themselves began to implement the necessary reforms.  

The several reforms initiated by the Modi Government to re-configure the power state in the state created wonders. The losses were stopped, and efficient usage of electricity without any leakages was made the norm. The major upgradations and clear cut policies pertaining to the power sector also boosted investor confidence, who were ready to bring in private capital for power generation.

Within three years, the massive power sector reforms undertaken by the state Government yielded results, making Gujarat into a power surplus state by 2003. The erstwhile GSEB, which has now been rebranded as Gujarat Urja Vikas Nigam Ltd (GUVNL), had posted a loss of Rs. 2,246 crores in 2000-01, on revenue of Rs. 6,280 crores. In 2019, GUVNL posted a profit of Rs.928 crore on total revenue of Rs 50,959 crore.

If one takes a closer look at the necessary reforms initiated by Gujarat, especially in the areas of capacity addition, restructuring power distribution companies – reveals how the leadership took breathtaking reforms to make a power deficit to a surplus state within a decade.

Several states have initiated such reforms in the past few years to improve their power generation capacities and Discoms by replicating the Gujarat story. However, not all states have achieved major success. As Prime Minister Modi took the reigns of Delhi in 2014, he introduced holistic reforms to restructure the power sector across the country. As Electricity is a concurrent subject, states too have equal responsibility to carry out such reforms that the centre has incentivised. There has been a slight improvement in the power sector in the country, however, much needs to be done.

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