An electricity engineer inspects the electricity meter of someone suspected of stealing power in the town of Modinagar in India on Aug. 16, 2012. The widespread theft of electricity has helped push the power sector close to bankrupcty in India, and undermined the wider economy. (Simon Denyer/THE WASHINGTON POST)

It is no fun being an honest inspector for a state electricity board in India.

All around you, consumers steal electricity on a massive scale. Businesses and ordinary people help themselves by hooking onto power lines illegally or bypassing meters. Vote-hungry local politicians protect the thieves, making any attempt to catch and punish the culprits a dangerous game.

“There is a lot of political interference,” inspector Ved Prakash Agrawal said during a raid on the outskirts of the northern town of Modinagar. “The local politicians say, ‘I will have you killed, I will have you suspended, I will have you transferred.’ They complain to our higher-ups. It is very difficult.”

In India, about a quarter of all power generated is either stolen or lost in transmission, five times the figure for China. Still more is given away to farmers, while the rest is sold to consumers at a loss, pushing state electricity companies toward bankruptcy and resulting in the rolling blackouts that afflict almost the entire nation every day and undermine its economic prospects.

“Successive governments in India at the central and state levels have considered populism — the promise of cheap or subsidized power — an effective strategy,” Arvind Subramanian of the Peterson Institute for International Economics in Washington recently wrote. “But the consequence has been either no power or highly interrupted power for a vast majority of Indians.”

Power theft prospers in India

At its worst, India’s power sector is the perfect example of populism and patronage trumping sound economics, analysts say. Power symbolizes the way Indian democracy often fails to meet the most basic aspirations of voters for transparent government, jobs, empowerment and opportunity.

“Power is often an important source of the struggle between the politics of patronage and the politics of aspiration,” said Ashish Khanna, senior energy specialist at the World Bank in India. “The question is whether a credible promise of improved power delivery can be turned into a new narrative that meets those aspirations and reaps political dividends.”

India’s state electricity companies have run up losses of $46 billion, or 2 percent of national income, largely financed by lending from public-sector banks, straining the country’s financial system. As a result, the companies have little money to invest in equipment or pay salaries, or even to pay for the electricity they are receiving from newly built private-sector power plants.

Aware that this liquidity crisis was threatening the solvency of the power sector, the Indian cabinet last week approved a debt restructuring package for the state electricity boards — relief based on whether they improve their performance, do more to stem losses and strengthen regulation at the state level.

While the package has given the sector some breathing space, analysts said there was no guarantee that states would stick to their promises and undertake the fundamental reforms required to produce lasting benefits.

“This is a bailout without any assurance that the underlying problem — people paying more for power, politicians stealing less, et cetera, et cetera — has been addressed,” Subramanian said.

The Uttar Pradesh problem

The scale of the problem is nowhere more apparent than in the vast northern state of Uttar Pradesh, home to 200 million people. It is a place that encapsulates the worst of Indian politics, where “strongmen” with long criminal records flourish and where voting is largely driven by caste and religious allegiance rather than by performance.

The state’s power sector is one of India’s least efficient and its economic growth rate among the nation’s lowest.

One of the main reasons for the massive blackout that affected half of India in late July was that Uttar Pradesh was drawing too much electricity from the national grid. That in turn was largely because powerful local politicians had forced the state electricity board to deliver uninterrupted power to key constituencies, a demand that drained the grid’s meager resources to the breaking point, power engineers say.

At the same time, the Uttar Pradesh Power Corp., the state enterprise that buys electricity from power plants and sells it to consumers, is virtually bankrupt.

The cost of the electricity it purchases is rising sharply, partly because India’s coal industry is stagnating and power stations are forced to import costly foreign coal. But political pressure ensures that the tariffs it charges simply cannot keep pace. Almost every year, local, state or national elections here provide another excuse for inaction.

Theft makes a bad situation significantly worse.

The power corporation has not recruited any new staff for the past 30 years, said R.S. Pandey, director of transmission. It used to employ about 100,000 people but now employs fewer than 40,000, while its customer base has risen tenfold, he added.

Decades-old transformers frequently burn out. Most overhead electrical wires are not insulated, making theft as easy as hooking a pole onto them — and law enforcement is virtually nonexistent.

“When we go to the villages, we just do whatever we can in five minutes,” said one engineer who was not authorized to give his name. “We just book three people out of 100 offenders and get out. Then we can’t go back to that place for four months or so — otherwise they would kidnap us.”

Only about a third of households in the state say they even have a power connection, and those that do face severe rationing.

The Confederation of Indian Industry says the power situation is the main obstacle to attracting investment into Uttar Pradesh and is contributing to an exodus of skilled, ambitious young people.

Some bright spots

Yet across India, the picture is not uniformly bleak.

A few states, including Gujarat in the west and West Bengal in the east, as well as the capital, New Delhi, have enjoyed considerable success in reforming their power sectors in the past decade.

“Political interference at the local level is totally absent here,” said Malay Kumar De, West Bengal’s power secretary. “We don’t have a power rationing or shortage situation. When the government has sent a clear signal that theft is not to be encouraged, things fall into place.”

Subramanian said there is a strong correlation between states that have enjoyed fast rates of growth in the past two decades and those with low levels of electricity losses.

Power, he said, is a good proxy for governance in general: States with inefficient power sectors tend to fare poorly in other ways.

If India could crack the power sector, he said, it could help sever the link — “both actual and perceived” — between populism and electoral success.

In New Delhi, Indian Power Minister Veerappa Moily said the debt-restructuring package will provide the incentives states need to reform. “They will resist now,” he said, “but they will have to come around. If they want their states to run, they will have to go by this.”

Back in Uttar Pradesh, though, the idea that the system will change — and that democracy could work in India’s favor — still seems slightly fanciful.

“The politicians and the judiciary we have, it is very difficult to prosecute anybody for the theft of electricity, because the fear of the law is not there,” Pandey said. “This is the dark side of Indian democracy. Hooliganism and vandalism is always there.”

Rama Lakshmi and Suhasini Raj contributed to this report.