To ensure that “Make in India” really becomes viable for industries, Power Minister, Piyush Goyal wishes to supply cheap electricity that would lower the manufacturing cost of Indian-based industries. The lower cost would create a wider market for Indian-made goods. “The success of Make in India depends on multiple inputs with cost of energy being one of them,” says Anish De, partner at KPMG India. He explains that more than 40% of the total electricity produced in India is consumed by large industries of which nearly 45% (particularly in the metal sector) compete on a global scale. For these basic industries, that also feed into the downstream industries, the cost of electricity is a fairly critical input accounting for over 15% of their overall operating costs. So, “if we have to really compete with the rest of the world and particularly China, these critical input cost for the basic industries have to be lowered.”
India’s enhanced coal production forms the basis of the Power Minister’s confidence to supply reliable and cheaper electricity to industries. He plans to operate India’s coal-fired power plants to its full capacity (highest pay-load factor) that would lower the generation cost of electricity quite significantly. Added gains are expected to come from rooting out administrative inefficiencies that makes India lose 25% of its electricity either in transmission or in simple theft.
At present, the industries in India pay a fairly higher tariff for electricity largely aggravated by cross-subsidies. As a consequence, Indian industries tend to become uncompetitive both in the domestic (by making large imports) and in the overseas market. If India wishes to double the share of manufacturing in the GDP to 25% then we have to address the cost of electricity for industries, says De. Although there is enough installed power production capacity available at this time but the cost of delivery is very high resulting into lower demand by the industrial consumers. De asks for reducing the cross-subsidy to allow industrial demand to kick in on a much larger scale.
The other big triggers that can make India a global manufacturing hub are the GST bill (still waiting for legislative attention) and ease of doing business both of which enjoys priority status with the current government.
Experts feel that the non-passage of the GST is holding up Make in India in a big way.
Many feel that cheap electricity, meant to boost manufacturing in India in a big way, could be a game changer catalyst to generate the quantum of jobs required to put India’s demographic dividend to productive uses.