Since the cancellation of the Dabhol Power Project (DPP), the debate about electric power in India has come into the public view, raising hopes that corrective measures can be taken to have a cost effective and growing power industry. A critical examination of the recent policy changes especially as regards the Independent Power Projects (IPPs) reveals that there are many dysfunctionalities in this policy, particularly in the burden it places on the balance of payments, and in the constraints against improvement in the state sector. This would be damaging to indigenous power equipment manufacturers, particularly, the BHEL. Moreover the policy fails to recognize that bulk purchase of power by a utility necessarily acts against the interest of the utility. If the policy is truly amended to avoid a bias in favour of the IPPs, little of the planned investments, especially from the foreign sector, would materialise. That there are significant social gains in having power generation in large integrated firms has been little appreciated. Several constraints to the healthy growth of the sector that had been building up are uncovered in this paper: the inability of the state sector to discipline its management and workforce, large-scale corruption and leakages, load and system imbalances brought about by inadequate investments in distribution systems, and in hydel capacities. The bulk industrial consumers being increasingly left to fend for themselves through captive power generation have further contributed to the structural weakness of the SEB system. The problem was compounded by the severe resources 'constraint' of the state. The vicious circle that exists today can be broken only if the government gives up its monetarist blinkers and realises that investments can in part 'create' savings, especially in a sector like power. Large under-utilised capacities in the equipment sector further add to the savings potential. Central contributions to the SEBs need to be linked to their efficiency, and to the resources they are able to generate. This part contains Sections I to VI of the paper, which discuss the recent policy changes, bringing out the dysfunctiontalities therein, and present a national alternative. 

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