Few sectors in India’s economy have witnessed as rapid structural change as the telecommunications sector. The New Telecom Policy, 1999 triggered vigorous competition among firms and technologies, accelerating growth and modernization.
This transformation demonstrates potential for other infrastructure segments to attract massive private investment and benefit consumers via competition between old and new technologies.
The sector has seen a significant shift in the structure and composition of telecom growth, notably in mobile vs fixed phones and public vs private participation.
In 1999, mobile phones and private sector each accounted for about 5% of total phones. Presently, mobile phones represent over 92% of total phones, with the private sector holding 78% market share.
The evolution from basic telephony to Value Added Services (VAS) expanded the user base and enhanced user experience. Mobile phones now serve as infotainment devices beyond simple voice communication.
India’s telephone network, including mobile phones, totals approximately 750 million connections. However, tele-density (phones per 100 people) stands at about 60, lagging behind countries like the UK, USA, and Australia where it exceeds 120.
Despite the lag, trends suggest rapid catch-up fueled by massive investments, including foreign direct investment (FDI).
A significant rural-urban divide exists: tele-density is only 26 in rural areas versus 120 in urban. To address this, the government established a Universal Service Obligation (USO) Fund funded by a cess on telecom firms to subsidize rural rollout.
Initially focused on fixed landlines, the USO Fund was amended to subsidize mobile phones, which proved more cost-effective for rural connectivity.
India also faces considerable challenges in broadband telecom and internet penetration, which remains low compared to similar countries.
The launch of third-generation (3G) telephony services is expected to advance India’s digital transformation, fostering empowerment and economic growth similar to the earlier mobile revolution.
The Broadband Policy announced on October 14, 2004 aims to achieve 20 million broadband subscribers and 40 million internet subscribers. Key policy goals include:
Affordability and reliability of broadband services
Incentives to stimulate infrastructure creation
Employment generation
Adoption of latest technologies
Ensuring national security
Fostering a competitive environment to reduce regulatory interventions
The need for energy in a developing economy cannot be over-emphasized. Energy is the basic input required to sustain economic growth and provide essential amenities to the entire population.
It is the dividing line between a subsistence economy and a highly developed one. For example, an average American consumes nearly 40 times the energy that an average Indian consumes. (Annual commercial energy consumption per capita is estimated at 513 kilograms of oil equivalent in India versus 7,943 in the USA).
Empirical evidence suggests that inadequate energy supplies inhibit development, while assurance of adequate supply and energy mix acts as a great stimulus to growth.
India has an installed electricity capacity of 147.0 million kilowatts, making it the fifth largest producer of electricity worldwide, after the USA, China, and Russia.
Energy sources in India can be classified into two groups:
Commercial sources dominate the energy landscape: thermal power accounts for about 81%, hydel power 13%, and nuclear power 3%.
The bulk of commercial energy is consumed by the industrial sector, followed by transport and household sectors. Non-commercial sources still supply much of rural and domestic energy needs, but their share is expected to decline further in the next decade.
Energy requirements are projected to multiply by 2 to 6 times depending on economic growth rates. Even with a modest annual growth rate of 5%, per capita energy consumption could increase by about 2.5 times.
The term “energy problem” refers to the challenge of providing fuel and energy in various forms at reasonable cost, to all who need it.
Currently, India faces an energy shortage of 10.1% and a peak load shortage of 13.3%. With an elasticity coefficient of 0.95, a 9% GDP growth implies a 7.6% annual growth in electricity demand.
To meet this demand, power generation capacity must increase more than sixfold by 2032.
Challenges include:
For a healthy development of the power sector, the following objectives must be met:
Minimise investment costs to enable better utilisation of available financial resources;
Minimise net outflow of resources, especially foreign exchange;
Minimise costs of energy production to achieve economies in power supply and keep power tariffs affordable without heavy and unsustainable subsidisation;
Maximise security of power supply and insulate it from external, international events and catastrophes.
The various measures can be divided into two categories: (a) energy pricing measures and (b) non-pricing measures.
Policies adopted in India generally aim to:
Meet the maximum energy needs of low income consumers;
Encourage the shift from oil products to domestically produced fuels;
Provide pricing subsidies to sectors like agriculture and specific industries, keeping energy prices low to maintain a margin between output price and input costs;
Allow prices to be determined administratively, promoting rational use and conservation of energy.
The overall trend is towards greater efficiency in pricing, with recent decisions passing increased import price burdens fairly to all producers.
These measures, introduced after the first oil price shock, rely largely on allocation and management:
The government prioritised substitution of heavy fuel oil (furnace oil) by coal wherever technically feasible;
Efforts have been made to regulate and manage energy demand and improve energy use efficiency in various sectors;
On the supply side, increased production of crude oil, refined products, and both conventional and non-conventional alternative energy sources;
Other important steps include:
Improving existing asset utilisation;
Reducing transmission losses;
Adding power generation through the private sector;
Growth of low voltage equipment industry linked to:
Investment level in the power sector and electricity availability;
Growth in the industrial sector in India.
In 2002, the Accelerated Power Development and Reform Programme was launched, becoming the focal point for reforms in the distribution segment;
The Power Grid Corporation is implementing the National Power Grid Project, estimated at Rs. 80,000 crores, to be completed by 2012. It aims to connect all existing power grids into a national grid to transfer excess power to deficit states;
In early 2004, the India Power Fund (IPF) was launched to:
Facilitate expeditious financial closure of power projects;
Accelerate investment in the power sector;
Promote competition aligned with the Electricity Act, 2003.
An integrated energy policy should focus on:
Relative prices of fuels based on calorific value, conversion efficiency, storage, transportation, and pollution potential;
Rationalisation of tax and duty structure;
Promotion of energy efficiency throughout the entire energy value chain.
The aim of recent economic reforms is to attract private investment, both domestic and foreign, in the field of energy.
The private sector units can set up coal/lignite or gas-based thermal, hydel, wind, solar energy projects of any size.
The private sector can set up units either as licensees distributing power in a licensed area from own generation or purchased power, or as generating companies, generating power for supply to the grid.
New licences can be issued by the State Governments to interested private companies through competitive bidding.
Captive power plants set up by private enterprises will be permitted to sell or supply surplus power to SEBs.
Projects with an investment of less than Rs. 25 crore are exempted from normally mandatory CEA clearance.
100 per cent FDI through automatic route has been allowed in gas pipelines.
Ten Ultra Mega Power Projects (UMPPs) are being launched. Each UMPP will have a capacity of 4,000 MW. The UMPPs are a special government initiative to bridge the demand-supply gap with private participation through tariff-based competitive bidding.
All private companies entering the electricity sector hereafter will be allowed to maintain a debt-equity ratio of 4 : 1. They must raise a minimum of 20% of the total outlay through public issues. The promoter’s contribution should be at least 11%. Not more than 40% of the total outlay can come from Indian public sector financial institutions.
For both licensees and generating companies, up to 100% foreign equity participation can be permitted for projects set up by foreign private investors. With government approval, import of equipment for power projects is permitted if foreign suppliers or agencies extend concessional credit.
Generating companies can sell power based on a suitably structured two-part tariff.
Specific incentives for licensees include:
Licences for a longer duration of 30 years initially and renewals of 20 years, replacing the previous 20 and 10 years respectively;
Higher rate of return of 5% instead of previous 2% above the RBI rate;
Capitalisation of interest during construction at actual cost, replacing previous 1% over RBI rate;
Special appropriations to meet debt redemption obligations;
Exemption from provisions of the MRTP Act.
A guaranteed return of 16% is provided — foreign investors receive it in dollars.
Private sector participation is allowed in renovation and modernisation of hydro and thermal power projects. Detailed guidelines were announced on October 29, 1995. These guidelines include three options:
Lease, rehabilitate, operate and transfer (LROT);
Sale of plant;
Joint venture between SEBs and private companies.
Towards the end of 2008, the Planning Commission of India approved the Integrated Energy Policy, a landmark policy aimed at restructuring the energy sector to promote sustainable and efficient energy use. The policy emphasizes two critical elements:
Market-based energy pricing: The price of all energy from every source must be determined by competitive markets to reflect true economic costs.
Differential taxation based on environmental impact: Energy sources should be taxed differently depending on their negative externalities, particularly their contributions to local and global pollution.
The immediate and significant implication of this policy is that subsidies on all energy sources should be phased out. Consumers will be required to pay not only the supply cost of energy in a competitive market but also the environmental cost associated with their consumption.
Implementation of this policy will likely raise the prices of several petroleum products currently subsidised in India, such as LPG and kerosene. Conversely, it will reduce the price of petrol relative to diesel due to the removal of differential taxes between these fuels.
Although the policy does not advocate a complete elimination of subsidies, it strongly supports better targeting and limitation of subsidy scope to enhance efficiency and environmental sustainability.
India has never lacked intent on the infrastructure front, but has often faced challenges in implementation. A sum of $1 trillion is proposed to be spent on infrastructure development during the Twelfth Five-Year Plan, constituting 9.95 per cent of GDP.
Following key suggestions can help accelerate the growth of infrastructure:
Annual Infrastructure Budget: Similar to the railways, an annual policy, progress, and accountability statement is needed for sectors such as roads, ports, power, and airports. This will ensure focused attention and monitoring.
Establishment of Infrastructure Investment Promotion Board: Modeled on the Foreign Investment Promotion Board, this body can identify infrastructure projects of national importance, secure land and environmental clearances, mobilize funds, set deadlines, review quarterly progress, and provide regular implementation updates to the nation.
Setting Up of Domestic Economic Zones (DEZs): DEZs could be established similarly to Special Economic Zones (SEZs), enjoying comparable benefits to promote economic growth.
Independent Regulatory Authorities: Independent regulators with authority over both government and private bodies will enhance investor confidence. These regulators should monitor projects and safeguard consumer interests in infrastructure services.
More PSUs to Carry out Major Infrastructure Projects: Currently, few institutions effectively translate fiscal devolution into on-ground projects. The government must create more such institutions to boost infrastructure delivery.
Public-Private Partnership in Rural Infrastructure: The successful PPP model in roads and highways can be expanded to rural infrastructure projects such as irrigation canals, mandies, cold storages, and rural roads.
Mass Transit System in Top 20 Cities: Implementing city-specific mass transit systems will improve urban productivity and reduce congestion.
Energise PSUs in Inland Waterways and Highways: Revitalizing Public Sector Undertakings focused on inland waterways and highways will support enhanced transport infrastructure.