Washington: The 2008 Global Financial Crisis had little impact on funds flow to South Asia’s power sector and had only marginal adverse impact on India’s power sector, a new report has said.
In India, the impact of the global financial crisis on its power sector was marginally adverse in the short term, said the report “The Impact of the Global Financial Crisis on Investments in the Electric Power Sector: the Experience of India, Pakistan, and Bangladesh”, released by the World Bank’s Energy Sector Management Assistance Program (ESMAP).
“India’s relatively strong economic fundamentals provided room for cushioning the impact of the crisis through fiscal stimulus packages in December 2008 and January 2009,” it said.
The report said India’s monetary policy was also eased and interest rates were sharply lowered during the crisis. However, it added, the negative impact of the global financial crisis was felt on private sector investments, but it lasted only for a few months in the latter part of 2008.
Similarly, investments in renewable energy projects became relatively unattractive due to perceptions of technology risk on top of the usual commercial and financial risks, the report co-edited by Mohua Mukherjee and Kumar V Pratap said.
It attributed India’s power sector resilience in the face of the global financial crisis to strong domestic demand fundamentals, conducive business environment since the enactment of the Electricity Act (2003), broadening of domestic private power developer base, dependence on domestic sources of debt funding and existence of strong sector-focused financing entities.
Timely intervention by the government in the form of fiscal stimulus packages to revive demand, appropriate monetary policy measures by the central bank to address liquidity problems and existence of government-owned central sector entities with strong balance sheets and robust cash flows also helped withstand the crisis better.
However, the crisis had a beneficial effect on India’s power sector as it helped weed out speculative developers who had a relatively short-term outlook on the sector.
Besides, it underscored the importance of power companies with strong balance sheets and discouraged speculative behavior in competitive bidding for power projects and brought tariffs to realistic levels.