Sunday, August 12, 2012

India’s Electricity Blackout & the Curse of Capitalism


680 million people in India were without electricity for two days, the power grid outages in northern and eastern India crippled cities, caused chaos to public transport, hospitals, schools and industry causing the biggest blackout in world history. Whilst many have analysed the concept of a ‘Shining India’ - the idea that a well-educated, English speaking, cheap and large labour pool could allow India to emerge as a major player on the global stage, this disaster of epic proportions clearly is more than a mere blip in India’s path to progress.
Like China, India has been analysed by economists, geopolitical experts, intelligence agencies and futurologists. India today is recognised as a BRIC nation, a nation rapidly developing due to embracing global Capitalism. This latest episode is just one in the long list of problems that India is suffering common to all nations that embrace Capitalism.
India: Past and Present
It was the fall of the Soviet Union that forced India to change its direction. For nearly 50 years successive Indian leaders closed the Indian economy to the outside world. Narasimha Rao began the liberalisation of the Indian economy allowing foreign multinational companies to enter the Indian market and heralding India’s embracement of global Capitalism.
The liberalisation, privatisation and opening of the Indian economy were handed to a finance minister who was at the time an unknown economist – Manmohan Singh. Manmohan Singh instituted reforms through opening Indian markets to foreign investment, opening India’s capital markets to foreign investment banks, deregulating domestic businesses and reforming the trade regime. Liberalisation got rid of Licence Raj and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.
After nearly 20 years of implementing reforms cities such as Bangalore have risen in prominence and economic importance and have became centers for foreign investment. On the eve of reform India’s economy was a mere $317 billion, today the Indian economy has grown to a whopping $1.2 trillion, the 12th largest economy in the world.
Energy Crunch
India's newly appointed power minister told the Business Standard newspaper that India still has the world's best power grid, when a tenth of the world’s population were on the receiving end of a blackout.

Anyone familiar with the country will most likely not be surprised. India’s rapid economic growth has led electricity demand to vastly outstrip supply. But blackouts in India are an all too common occurrence. This specific crisis has been caused by a huge increase in urban demand for energy and with the monsoon season being late in 2012 rural demand for pumps to pull out ground water to compensate for deficient rain in the farmlands put more burden on the crumbling electricity grid. The lack of rainfall also hit the country's hydroelectric dams leading to the major northern states hogging the bulk of electricity from the national grid. However more fundamental issues remain which have not been tacked by successive governments.
For India rising energy demand due to economic development has created a perpetual state of energy crunch. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Although India is rich in certain energy resources which promise future potential such as renewable energy resources like solar, wind and biofuels (jatropha, sugarcane) such sources however are still in their early stage of development and can in no way provide sufficient energy for development of industrial scale.
So whilst India has been exporting, this so-called "Shining India" concept, in reality only a handful of places such as Bangalore and Hyderabad can really be cited as examples of this where a number of multinational corporations have moved. But one cannot escape India's interminable dilemma of matching its growth with a bloated and lethargic bureaucracy, crippling infrastructure, rampant corruption, crushing demand and a population that's not afraid to riot and complain against the government when basic services fail.
Deluge of Problems
The state of India’s other infrastructure is even worse. The electricity crunch caused by huge red tape, corruption, heavy subsidies and lack of coordination among the states and between the state and central government is really just one example of India's infrastructure crisis. The roads, railways and ports suffer from the same issues.
For any nation to have any global power projection capabilities it needs to develop domestic infrastructure of roads, ports, electricity grids, water supply and telecoms in order for the nation to move forward and contribute towards progress. Indian infrastructure has come to be characterised with crumbling roads, jammed airports, and power blackouts and rampant corruption in mega projects. Indian technology firm Infosys Technologies Ltd has confirmedthat with virtually no mass transit in Bangalore it spends $5 million a year on buses, minivans, and taxis to transport its 18,000 employees to and from its offices and factories. It also confirmed that traffic jams mean workers can spend upwards of four hours commuting each day. India’s spending in this area is only $31 billion. India has only 1% of the world's vehicles, but it accounts for 8% of the world's vehicle fatalities. Recent estimates by Goldman Sachs have shown that India will need to spend $1.7 trillion on infrastructure projects over the next decade to deal with its rapid economic development.
Short - Termism
This idea of "Shining India" was attractive, but Indian policy makers believed they could take a shortcut to development without addressing fundamental developmental concerns. Nuclear weapons and foreign investment are not enough for development especially when much of the country is still living in abject poverty and when states have very little incentive to carry out policies from central government. When New Delhi announces a major five-year infrastructure plan, it has to work through a bureaucratic maze of policy makers who are not willing to deal with the public backlash and who are prone to pocketing funds along the way.
Indian politicians like their democratic counterparts suffer from the realities of the political cycle. The Indian elections cycle is every five years and most Indian politicians have shown again and again they are far more worried about their personal status in their re-election then they are about long-term development. And so not wanting to risk riots, many state governments haven't raised their power tariffs for up to 10 years and free or subsidized power supply, especially to farmers, is a very common campaign promise.
Similarly an elected member of the US House of Representatives, from day one, has to plan to raise a million dollars or so for his/her re-election campaign in two years time. Therefore one would need to spend an inordinate amount of time raising money, getting close to donors, and getting people who you may not like to write cheques. In addition one would try to avoid any tough votes since in all likelihood the benefits will only be seen years down the road and why risk antagonising people who could vote you out in two years time. Running up deficits, not tackling longer-term challenges in education, the environment, pensions, energy or poverty is the norm. All of these issues require tough choices and statesmen like solutions, but taking such decisions is akin to writing an electoral suicide note.
In essence the more elections you have the more likely you are to poison your system with money and short term thinking. This is what we see in the West today, countries dominated by powerful interests, riddled by political corruption and with soaring deficits and other long-term problems left completely un-tackled. What this eventually leads to is politicians failing in their fundamental duty, which is to serve the public. In essence politicians become obsessed with their futures not the country’s future. They are focused on their interest not the people’s interests.
Corruption
India is considered by many to be the largest secular democracy in the world, it is also considered to be the most corrupt. Politicians at both federal and state level have been milking the country dry since partition in 1947. Whilst India is world renowned for its corruption the adoption of capitalism will institutionalise this. This is because by not separating money and politics the West has already poisoned its system.
The developing democracies don’t fare any better. Elections in Kenya, Afghanistan and Pakistan have all yielded a corrupt elite and Russia’s conversion to democracy has produced an oligarchy more interested in making money than serving the public. In essence democracies in country after country favour the elite while continuing the propaganda that everyone has the same power within a democracy.
The expenses scandal in Britain, with its Westminster parliament considered the cradle of democracy faces a similar crisis. However, people disagree about how to solve this crisis and many of the other cases of corruption and corporate interests in legislation. Many believe that the West can clean up the system by introducing reforms. But fundamental problems exist in every secular democracy, advanced, emerging, large, small, western or eastern. They all show the same thing: they serve the elite and not the public; their politicians are largely corrupt; wealth remains confined to a tiny minority; and long term challenges are consistently ducked.
BRICS
India is not the only BRIC country hitting the wall. Brazil is still struggling to keep inflation under control and stimulate industry when its currency continues to appreciate. China struggles in trying to balance the need for economic reform with social stability without compromising on the need for high growth to avoid unemployment.
Similarly Russia will take a hit from the European slowdown and its commodity driven economy will run into trouble as shifts take place in the global natural gas market over the next decade. Russia's political and business environment has also not been very attractive for foreign investors for many reasons.
Conclusions
If India continues down the path of Capitalism than although it will see some development it will also suffer the fate that nations that have already embraced secularism suffer from. India is already showing signs of this. Old age was never a problem in India. Old age homes were alien in concept and elder abuse was considered a Western problem. Not any more. As life expectancy has increased hundreds of old age homes have sprung up in India. The neglect of ones elders has very quickly turned into an endemic issue that the Indian government was forced to address. It has attempted this through ‘the maintenance and welfare of parents and senior citizens bill 2006.’ This made it imperative for adult children to look after their parents. The regions culture is built upon parents being an honour and their neglect, a humiliation. In 1998 there were 728 old age homes in India, today there are more than 5000.

Adnan Khan

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