All aboard! The Indian Economy is leaving the station. Away from archaic wastelands of textiles and agricultural goods, this sparkling new train is revving up to speed into a new world of prosperity where technology is king, standards of living are skyrocketing and rewarding employment is bountiful.

As an American observer, you buy your ticket quickly, because you know that there are 1.1 billion Indians waiting in line to go where this train is going. No worries if you don’t speak Hindi. English is now the most read and written language in this country. The woman at the counter is one of 200,000 that have been trained to neutralize their accent, and speak exactly like born-and-raised Midwesterners. “Here’s your ticket, Sir. This is a pretty large train – 20 cars. Be sure to get a great seat in one of the front ones, Sir. They’re the best. Enjoy your ride.”

You step aboard the first car and feel the light purr of the engine, developed by Indian engineering graduates, of which there are 350,000 new ones produced each year. (The U.S. has only 60,000.) The automatic doors open and you are greeted by the icy breeze of the air conditioned interior, made possible by the country’s booming $25 billion chemical industry.

As you walk down the aisle of the car, you notice that the passengers look remarkably engrossed in their work. A gentleman to your left is arranging a meeting on his Motorola cell phone designed in New Delhi, manufactured in Mumbai and packed with software coded in Bangalore. A business woman sports a Chanel jacket, a luxury purchase aided by her recent growth in purchasing power of 37% over the last decade. A doctor clicks furiously at his Dell lap-top assembled in northern India, polishing off the last few sentences of a journal article that will win his country’s 10th Nobel Prize this year.

The conductor comes scurrying down the aisle toward you, politely smiling as he says, “You should stay up here in front, sir. The view is the best from the front cars.” He scoots past, and you glance up to see the word “Outsourcing” neatly stitched on the brim of his cap.

Seeing that this car has quite a few seats taken and that you have a few minutes, you move toward the back. All of this wealth of talent and potential is more intriguing to you than a good view. You walk through the second car, the third, the fourth... and you find more success. You go through the seventh, eighth and ninth – each one more impressive. By the time you get to the back of the tenth, you are wondering if your job will still be there in the States when you get back. And then, cruising along, you suddenly smack your face right into the window of the door to the eleventh car.

So used to the automatic entries, you didn’t realize that this car had a manual door.

You reach for the handle, and pull the heavy door to the side. A cloud of humidity envelops your face and neck, and you feel the tip of your brow start to sweat.

The air is hot, and the car is dark. Not only is there no automatic door, but no lights either. In fact, this car has no power at all. Peering through the back window, you realize that it’s not just this car that’s like this, but the entire back half of the train.

Without power, and without passengers.

Although the Indian Economy’s shiny front is full of potential and ready to speed ahead into an era of unprecedented growth and prosperity, it’s attached to a big ugly back end. This back end is the power industry. And it’s holding up the train.

With 65% of its power plants owned and run by the government, the power industry has fallen into disarray. State utilities that control electricity distribution are flooded in debt. Mismanagement has left half-built plants to rust while waiting for the resolution of endless legal battles. And with the overspending government strapped for cash, it can’t afford to build new plants and help feed the raging demand. This has left almost half the Indian population with no access to electricity.

That’s 500 million people without so much as a light bulb.

The solution to this would be to allow the private sector to come in and build new plants. But the government’s grip on distribution utilities has scared off private investors who fear that they would never end up getting paid once they built a plant. Today, 28 of the 29 State’s Electricity boards lose money. None produces adequate power, and up to 40% of what they do produce is either stolen, leaked, or given free to local farmers -- practices that cost the industry an estimated $5 billion a year.

Just this week the government had to impose electricity restrictions that cut power supply to only nine hours a day in some areas.

With other sectors charging ahead through the help of globalization, the spread of technology, and increasing incentives for Westerners to outsource to lower-wage destinations, India’s power infrastructure is being stretched taut.

Unless the government can convince the private sector to invest in new plants, the back half of this train to prosperity will remain empty and dark. And despite the lack of passengers, these last 10 cars are heavy. The drag is so strong that the front end’s strengths might soon fail to make up for the weight, and the entire train may grind to a painful halt.

Only the government can decide when to let go of this sector and allow market forces to make the risk-return decisions necessary to get these plants built. The demand for power is huge – all investors need is confidence that they’ll get paid.

Until the government gets its act together, maybe you should hold off on buying your next ticket.

Posted by Michelle Smith on June 12, 2005 11:23 PM