santhakumar parallel 4 5

Impact of the cost of reform on social support for reform:A study of power sector in Indian states : Impact of the cost of reform on social support for reform: A study of power sector in Indian states V. Santhakumar India Development Foundation Gurgaon, India andamp; Centre for Development Studies, Trivandrum, India


Relevance: : Relevance: Impact of the distribution of the costs and benefits of reform on its implementation Recent reviews on politics of reform: Fidrmuc and Noury (2002) `Lack of systematically collected and analyzed empirical data' `Problems in collecting empirical data across different countries for comparison' Power sector reforms (PSR) in Indian states may provide comparable data


The context: Indian power sector reforms : The context: Indian power sector reforms An Outline of Power Sector Reforms Contd……


The context: Indian power sector reforms : The context: Indian power sector reforms Little progress in PSR in many states on basic issues in spite of several initiatives Political opposition is seen as a major constraint Slow progress after recent state elections Independent regulators unable to resolve issues related to: Open access, Cross subsidy, Government compensation Contd……


The context: Indian power sector reforms : The context: Indian power sector reforms People demand government intervention at the time of regulators’ decisions Collusion between governments and state owned utilities make regulation ineffective Subsidy motivates state government to meddle with regulation Thus the need to analyze the political economy factors making power sector reforms difficult in India Contd……


Factors blocking/facilitating economic reforms in extant literature : Factors blocking/facilitating economic reforms in extant literature War of attrition Crises facilitating reform Uncertainty of benefits at the aggregate and individual levels Resistance of interest groups Differences in support/opposition to reforms among social groups Contd……


Factors blocking/facilitating reforms in Literature : Factors blocking/facilitating reforms in Literature Role of democracy/autocracy Role of left wing/right wing governments Median voter preference Blocking marginal cost pricing for electricity in Canada Role of Middle class Contd……


Political economy arguments in Indian power sector : Political economy arguments in Indian power sector Radical political economy argument: ‘External funding agencies pushing market oriented reforms’ Influence of the ‘big’ farmers keeps agricultural tariff low Big farmers as political intermediaries delivering blocks of voters Losers few, organized; beneficiaries many, unorganized


Arguments inadequate to explain Indian situation : Arguments inadequate to explain Indian situation Privatization implemented in two states (Orissa and Delhi) without electoral setbacks Reforms seem to have caused electoral setbacks in two other states (AP and TN) Reforms blocked also in states with less agricultural consumption Industry and trade groups demand reforms (including privatization) Contd……


Arguments inadequate to explain Indian situation : Arguments inadequate to explain Indian situation Slow or no progress in PSR in many states Despite the support from industry and trade Despite external agencies supporting reforms in all states Some states could make progress Despite employees oppose reforms in all the states Need to analyse the electoral opposition/support to reforms Contd……


Specific issues analysed in the study: : Specific issues analysed in the study: Analyzing Household response to PSR proposals Do they support efficiency reforms? Privatization used to gauge response Are households ready to pay a higher tariff for better quality? Contd……


Specific issues analysed in the study: : Specific issues analysed in the study: Assumption: response will depend on the costs and benefits of reform to households Cut in subsidy being received - a likely cost of reform Improvement in quality of supply - a likely benefit of reform Perception of economy-wide gains of viable power sector (including reduced fiscal deficits) Contd……


Method: : Method: Primary survey of about 7000 households in 14 states Econometric analysis of the determinants of households' response to reform Variables analysed Tariff range (reflecting subsidy) Units of Consumption Power interruption Connectivity Affecting other services Problems at work place Others Contd……


Method : Method Aggregation of households' response at the state-level Depends on the number of different types of households under each category in each state Identification of certain patterns using graphs Contd……


Type A : Type A Tamil Nadu


Type B : Type B Rajasthan


Type C : Type C Bihar


Kerala : Kerala


West Bengal : West Bengal


Andhra Pradesh : Andhra Pradesh


Gujarat : Gujarat


Haryana : Haryana


Punjab : Punjab


Karnataka : Karnataka


Maharastra : Maharastra


Uttar Pradesh : Uttar Pradesh


Salient results from regression (multinomial logistic regression) by pooling household data : Salient results from regression (multinomial logistic regression) by pooling household data Those who pay higher tariff (near or above cost of supply) 1.8 times more likely to be ‘indifferent’ and 50% more likely to say ‘yes’ to privatisation, than saying ‘no to’ privatisation. The influence of power interruptions doesn’t seem to be high. Direct costs seem to be explaining the attitude to reforms


Pattern in the opposition to reforms? : Pattern in the opposition to reforms? More opposition to reform Rajastan, Haryana, Karnataka


The role of income groups and the support/opposition to reforms : The role of income groups and the support/opposition to reforms The losses of the richer sections 10-20% (including industry and trade groups) seem to be inadequate to push reforms The gains of the poor (mostly unconnected) seem to be inadequate to generate a support base for reforms Strong opposition to reform if middle class (from 3 to 7 deciles in an income order) get electricity at heavily subsidized rates Opposition declines as middle class starts paying near or above the cost of supply


Lessons : Lessons Lessons for the pro-reform and poor quality states Probable Options for anti-reform states Continue with voice option Divide the anti-reform force


Political reform - separation of sector governance : Political reform - separation of sector governance Figure 1: Kerala Contd…… One citizen one vote Consumer voting with weight for consumption


Political reform - separation of sector governance : Political reform - separation of sector governance Figure 2: Tamil Nadu Contd…… One citizen one vote Consumer voting with weight for consumption


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Determinants of opinion on privatisation across states (estimated odd ratios from a multinomial logistic regression model with reference 0 if no to privatisation) : Determinants of opinion on privatisation across states (estimated odd ratios from a multinomial logistic regression model with reference 0 if no to privatisation) Reference category: No to privatisation