New Delhi: Moody’s Investors Service Inc. on Thursday criticized India’s massive power transmission failures on Monday and Tuesday that left around 700 million people without electricity.
Power has emerged as the biggest bottleneck for India’s growth story, and inability to meet demand can hurt economic growth in the world’s second-fastest growing major economy. An outage on Tuesday was the second major power failure in as many days.
The widespread blackouts “have had a credit-negative effect on the country’s economic activity”, Moody’s said in its credit outlook report released on Thursday.
“The power failure underscores the inadequacy of India’s infrastructure, which inhibits the country’s growth by discouraging investment and impeding productivity improvements,” the ratings agency said. “Power disruptions will further depress business sentiment, already dampened by slowing growth and the government’s inability to implement measures to revive investment.”
Left stranded: Passengers wait for the train services to resume after a power outage in New Delhi on Tuesday. Photo: Kevin Frayer/AP
Power ministry officials were unavailable for comment as Thursday was a holiday.
Moody’s has a rating of Baa3 on India, its lowest investment grade.
India has been trying to revive dampened sentiments amid accusations of policy paralysis at the Congress party-led United Progressive Alliance administration.
“The breakdown in the power grid appears to have been the result of a mismatch between electricity demand and supply,” Moody’s said. “In addition, the sector reports higher-than-usual losses associated with distributing energy across an inefficient infrastructure and losses related to fraud and corruption by consumers who don’t pay for the energy they use.”
Moody’s critique was understandable, although it was probably an “overreaction”, said Anish De, chief executive, of Mercados EMI Asia, an energy consulting firm. “The Indian power grid is actually in better shape than, say, five years back. There is also significant generation capacity,” De said. “The problem is more of distribution utility finances. They have no money, hence contracting less but drawing more than contracted capacity, thereby stressing the power system.”
India has a power generation capacity of 205,340MW and plans to add 80,000MW in the five years ending March 2017. The country has missed previous capacity-addition targets. Chronic fuel shortages are hurting power generation and projects are faltering.
India’s outlook has been lowered to negative from stable by two other rating agencies—Standard and Poor’s (S&P) and Fitch. Both said slowing GDP growth and lack of credible steps for fiscal consolidation present significant risks to the economy.
India’s growth slowed to a nine-year low of 5.3% in the March quarter. The Reserve Bank of India on Tuesday lowered its growth expectations for the current fiscal year to 6.5% from 7.5% it had predicted in April.
The electricity problem may become worse. India’s power shortage during peak consumption hours—between 8-11am and 5-8pm—will surge from 124,995MW now to 199,540MW in 2016-17 and 283,470MW in 2021-22, according to the draft 18th Electric Power Survey of India, which has been seen by Mint.
The situation is alarming because the country’s per capita electricity consumption, at 700 kilowatt-hour, is less than one-third the global average; yet it faces a 10.2% shortage during the peak hours.
“This failure is a wake-up call and offers an opportunity to upgrade and improve transmission and distribution infrastructure,” said Amol Kotwal, deputy director of the energy and power systems practice for South Asia and West Asia at Frost and Sullivan, a consultancy.
S&P has recently said India could be the first among the so-called Bric (Brazil, Russia, India, China) nations to have its investment-grade rating lowered to junk status because of slower growth, ballooning deficits and political roadblocks to economic policymaking.
M. Veerappa Moily, the new power minister, tried to assuage fears by promising on Wednesday that such failures wouldn’t happen again.
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