Global Investing

Power failures shine light on India’s woes

July 31, 2012

Half of India’s 1.2 billion people have been without power today,  bringing transport, factories and offices to a grinding halt for the second day in a row and sparking rage amongst the sweltering population. That’s embarrassing enough for a country that prides itself as  a member of the BRIC quartet of big emerging powerhouses along with Brazil, Russia and China.  But the outages will also hit economic growth which is already at 10-year lows. And the power failures, highlighting India’s woeful infrastructure, bode poorly for the government’s plans to step up manufacturing and lure more foreign companies to the factory sector.

India urgently needs to increase production and exports of manufactured goods. After all, software or pharma exports do not create jobs for a huge and largely unskilled population. India should be making and selling toys, clothes, shoes –- the things that helped lift hundreds of millions of Chinese, Taiwanese and Koreans  out of poverty and fuelled the current account surpluses in these countries.  At present, manufacturing provides less than 16 percent of India’s gross domestic product (30 percent in China, 25 percent in South Korea and Taiwan)  but the government wants to raise that to 26 percent by 2022.  Trade minister Anand Sharma, in London last week, for a pre-Olympics conference, was eloquent on the plan to boost manufacturing exports to plug the current account gap:

In coming decades, India will be transformed into a major manufacturing hub of the world.

Unfortunately, without better infrastructure — roads, electricity and ports — that will remain a pipe dream.  Above all, factories need power. (Most workshops in India must resort to costly back-up power supplied by diesel generators)  While India has indeed pencilled in a $1 trillion investment target to revive infrastructure, half the funding is to come from the private sector and a flagging world economy could scupper those plans.

One hope remains — that this week’s embarrassment galvanises the government  into some bold reform moves.  As Jeff Glekin, my Mumbai-based colleague from Breaking Views writes:

What the country needs most is improvements in chronically mismanaged infrastructure. Change is hard when systems are working, even badly. So a huge power outage…could prove a blessing.


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