CHAPTER 2

2. THE POLICY FRAME WORK

2.1 Introduction

2.1.1 The policies of the government draw their legitimacy from the Constitution of India, Acts of Parliament and common law principles. Within the broad framework of policy, governments have traditionally made rules, regulations and passed orders, which translate the policy directions into practice. Where, in addition, governments, either directly or indirectly through wholly owned companies, have entered into commercial transactions, like production and sales or the provision of other services, the distinction between policy and practice gets further blurred. The policy maker, doubles up as the service provider, thereby sometimes, losing the sense of unbiased detachment; which is necessary for effective policy formulation. It is in recognition of this dilemma, that the ERC Act has sought to externalise substantial portions of regulatory responsibilities to independent regulatory commissions. The regulatory commissions are bound to be guided by the policy directions of government involving public interest. However they have the independence to frame the strategy, devise the tactics and define the instruments which are to be used to implement such policy directions. This chapter reviews the policies of government in relation to the electricity sector. The supportive strategies, tactics and actions that must be taken by those agencies charged with the implementation of policies, are dealt with in other chapters.

2.1.2 The policies of the central government have traditionally assumed the need for an intrusive form of regulation. Investment decisions, siting of projects choice of technology and fuel, volume of production, methodology of tariff determination, quality of supply and service and the nature of commercial contracts have all traditionally been decided by the government, or one of its associated entities. Developments in the policy framework can therefore, be fairly closely associated with, both the successes and the failures, of the past five decades. Government policy evolved in three major phases. The first phase from 1948 to 1975, can be categorised as the growth of state level investments in the power sector and the decline of private investments and management. The second phase from 1975 to 1991 marks the ascension of the central government utilities in generation and transmission. The last phase commences from 1991. This year marks a turning point in the policy of the Central Government, with respect to the power sector. Till that year, the policy had been oriented towards central planning and public investment led growth in capacity. From 1991, in line with the general trend of economic reform and liberalisation, government policy has evolved to a more market friendly approach. It now aims at achieving efficient and sustainable growth in supply, to meet demand, through the provision of price incentives and reliance on competition in supply, through induction of the private sector.