An Indian elderly woman eats at a roadside stall illuminated by a gas lantern in New Delhi, India. Earlier in August, a major system collapse led to a power outages and the worst blackout in history leaving an estimated 620 million people without electricity. (Altaf Qadri/AP)

Like China two decades ago and the United States in 1950, India stands on the cusp of transformational economic and social change, a jumping-off point at which the demand for electricity is about to explode.

Its economy and population are among the fastest growing in the world, and it has ambitious and energy-intensive plans to develop its infrastructure and industrial base. But business leaders are crying out for uninterrupted power supplies, and a third of India’s population is not even connected to the national grid.

“For a nation in its stage of development, demand for electricity has only one way to go — and that is very, very rapidly upwards,” said Laszlo Varro, the head of gas, coal and power at the International Energy Agency in Paris.

Every modern, industrial society in history has gone through a 20-year period “where there was extremely large investment in the power sector, and electricity made the transition from a privilege of an urban elite to something every family would have,” Varro said. “India is right now just at that jump point.”

Whether it succeeds in meeting that demand could be the single most important determinant of India’s economic prospects over the next two decades, one of the main factors that will decide whether the country can continue to pull hundreds of millions of people out of poverty and realize its ambitions to be a 21st-century economic powerhouse.

The thirst for energy has long shaped India’s foreign policy, helping it reach a historic deal with the United States in 2008 to develop its nuclear power industry but making it equally reluctant to sever ties with Iran, a major source of crude oil. It has become perhaps the most urgent challenge facing its economic policymakers.

But will India clear the bar?

Early this month, a blackout deprived half the country of electricity, affecting more people than any previous power cut in world history. But that blackout represented just the tip of a much larger problem.

With its energy policy in a mess, India is failing to meet its current demand for power and needs a fundamental change in the way its government operates if it is to meet the challenge of the next two decades, experts say.

Indeed, for entrepreneurs such as factory owner Tarun Gupta, the recent blackout was a day just like many others, a day shaped by his constant need for power.

Gupta runs a garment export business just outside Delhi that makes shirts and has supplied uniforms for companies such as Wendy’s, Pizza Hut and KFC. When his American clients e-mailed him after the blackout to ask whether the power was back on, Gupta said, he chuckled to himself.

“I wanted to tell them that I am doing my business with power cuts that last 18 hours every day here,” he said, speaking over the constant hum of the diesel-powered generators that supplement the grid’s meager supply. The cost of fuel makes his shirts 5 percent more expensive, “which plays a major role when you are competing in the international market with Sri Lanka and China.”

Down the road, Rajivh Sharma runs a giant dyeing business that employs 400 people on three floors. Because of the frequent power cuts, he needs more than 1,000 gallons of diesel a day to run generators. As a result, he is losing money and warns that he may have to close the factory in six months unless the power supply improves.

“A few days before the blackout, we had a terrible day when the diesel ran out,” he said. “We ran from pillar to post pleading with different agencies for diesel . . . but all we got was 600 liters. That only lasted two hours, and then we had to shut the plant down that day. The losses were huge.”

Counting on private sector

World Bank studies show that a lack of electric power is the biggest barrier to job growth and investment in India today and that outages are a significant drag on industrial output and retail sales.

The IEA predicts that India will need a $1.6 trillion investment in power generation, transmission and distribution to keep up with the rapid pace of energy demand through 2035 and a $550 million investment in the coal, oil and gas sectors.

“It will have to build roughly as much power generation in the next 25 years as the U.S. has today,” Varro said.

Much of that investment will have to come from the private sector.

India has expanded its generation capacity by nearly 40 percent in the past five years, with the private sector enthusiastically building power plants. But about a quarter of that new capacity is standing idle today because of a shortage of coal.

India sits on the fifth-largest reserves of coal in the world, but decades of under-investment and a dense web of rules and regulations has stifled mining. Production has been stagnant for five years, and imports of much more expensive coal from abroad are soaring. Even under the most optimistic predictions, India is set to become the world’s largest importer of coal by 2020.

The discovery of a major gas field in the Bay of Bengal in 2002 prompted a flurry of optimism and significant investment in a pipeline network. But output from the field has been disappointing, and the pipelines are running at just 20 to 30 percent of capacity.

Ambitious plans to expand nuclear power have been hindered by public protests in the wake of the nuclear disaster in Japan last year and by a dispute over liability in the event of an accident that has stymied U.S. investment.

India has huge potential to generate hydroelectric power, but environmental concerns and protests by people unhappy about losing their land have stalled progress.

‘Fragmented’ energy policy

But even if India finds the fuel it needs to power its generators, it is not clear how it will pay for the electricity they produce.

State electricity distribution companies across India are mostly bankrupt, forced by their political masters to give power away — free to farmers to run water pumps to irrigate their land, and at below-cost prices to everyone else. Theft and losses of power amount to 28 to 30 percent of output, further bleeding the distributors of resources.

Nationally, separate ministries for coal, gas, power and renewable energy routinely fail to coordinate.

“Policymaking in the energy sector is rather fragmented, and we really don’t have a forward vision,” said Rajendra Pachauri, who won the Nobel Prize in 2007 for his work as head of the Intergovernmental Panel on Climate Change.

Pachauri forecasts that if India continues on its path of “business as usual,” it will have to import unimaginable, and unfeasible, amounts of coal and oil in two decades.

A failure to invest properly in researching and developing renewable energy also threatens environmental ruin. “India can’t possibly continue on the path we are on,” he said.

Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution in Washington, said the difficulties that India faces in meeting its rising energy demand “would pose a serious political challenge for a well-run government — and that certainly isn’t the case here.”

He said the country could struggle to hold its own against other emerging economies, including Brazil, Russia, China and South Africa, countries that with India constitute what is known as the BRICS group.

“If I had to bet, I would say there is a greater possibility of India failing to meet the challenge than of meeting it,” Ebinger said. “You will see India slip down, out of the ranks of the fast-growing BRICS emerging markets, and you will see more political disturbances when energy fails.”