Institutional Endowments and Electricity Regulation in India

In 1991 Indian government launched systematic economic reforms programme. The infrastructure industries such as telecommunications and electricity have subsequently been restructured and opened to private sector participation. Accompanied with the restructuring and privatisation has been setting up of independent regulatory agencies for telecommunications and electricity. While there is a single Telecom Regulatory Authority of India (TRAI) for whole country the electricity regulatory system in India is central and provincial. In addition to Central Electricity Regulatory Commission there are 18 other provincial (state level) State Electricity Regulatory Commissions (SERCs) that have been set up by the local (state) governments to regulate electricity markets, encourage competition and private investment. This is due to the federal nature of government in India and also because Indian constitution lists electricity in Concurrent List, meaning both the federal and state level governments are authorised to frame policies regarding electricity supply industry except for nuclear power which is in domain of only federal government. Although most of the government owned state electricity boards are now unbundled and corporatised there is little or no privatisation and the private sector investment in generation and distribution has been very little. A major cause for this could be lack of effective regulatory arrangements. This paper will examine the Indian electricity regulatory developments from an institutional economics perspective following Levy and Spiller (1994) and Stern and Holder (1999) framework to analyse the regulatory systems. While discussion will encompass issues at national level, a case study of a particular state Gujarat will be provided to map the regulatory developments in context of the institutional endowments and see whether that could explain the limited success of regulatory system in achieving the expected outcomes namely effective economic regulation and encouraging competition in the segments where it is possible. The analytical framework used in this study is expected to lay foundation for a bigger study encompassing all the state regulatory commissions at a later stage. 1 Lecturer in Finance, Open University Business School, Milton Keynes. Email: [email protected]