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Diversity in Unity: An Empirical Analysis of Electricity Deregulation in Indian States

As developing countries seek to improve their economic prospects, electricity reform has been widely viewed as a central part of this effort. While the focus of most research to date has been at economy or utility level, there has been much less research on regional outcomes. India presents a unique case, as its states share a common economic and political system, whilst having been given considerable flexibility in how they implement reform, thus allowing a comparative analysis of alternative approaches to reform. This study presents an econometric analysis of the determinants and impact of electricity reform in India, giving special regard to its political economy and regional diversity. It assesses how electricity reform in India has affected key economic variables that determine sectoral efficiency, prices and investment flows. We use panel data for 19 states, spanning 1991-2007, using dynamic panel data estimators. Results show that individual reform measures have affected key economic variables differently; thus the nature of reform in individual states would determine these economic outcomes. Findings suggest that due to political economy factors, outcomes have tended to be adverse in the initial stages of reform, as previously hidden distortions become apparent. The performance of reforms, however, may improve as the reform progresses beyond a `baseline' level.

Keywords: Electricity, India, Reform, Deregulation, Regional impacts

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Energy Specializations: Energy Access – Energy Poverty and Equity; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electricity, India, Reform, Deregulation, Regional impacts

DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-4

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Published in Volume 33, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.