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Business News/ Markets / Mark To Market/  Why electricity usage in India has fallen more than in other countries

Why electricity usage in India has fallen more than in other countries

Due to countrywide lockdown, India’s electricity usage has been hit more severely than others
  • Weak industrial offtake and low per capita electricity usage at home are impacting demand
  • Impact on the economy will depend on duration of the lockdown and extent of fiscal support. (Bloomberg)Premium
    Impact on the economy will depend on duration of the lockdown and extent of fiscal support. (Bloomberg)

    Electricity consumption data collated by the Energy Policy Institute at the University of Chicago shows a striking decline in the case of India, when compared to the US and the European Union (EU).

    Researchers at the institute compared current energy consumption with levels in December 2019, and found that this has fallen between 18.5% and 24.9% from 25 March to 5 April. For the EU, the drop was between 4% and 9.5%, while in the US, energy consumption fell 2.5-6.9% (see chart).

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    Consumption of electricity is known to follow economic activity closely, and India’s sharper fall reflects its far more severe lockdown compared to many other countries.

    Arshad Perwez, vice president at JM Financial Institutional Securities Ltd, said: “The severity of the lockdown is more intense in India. Even the industries that produce essential goods are operating at very low utilization levels."

    Sambitosh Mohapatra, partner (power and utilities) at PwC India, said: “Apart from the fall in industrial consumption, the second factor that plays a role is the user mix. People in the US and Europe consume higher amounts of electricity compared to per capita electricity usage at home in India."

    Fiona Burlig, assistant professor of public policy at University of Chicago, said in an interview with Axios: “The electricity consumption in India in the first week of April 2020 is back at 2013–14 levels—a pretty shocking decline,"

    To be sure, while the average decline in the EU looks far lower compared to India, country-wise data analysed by the researchers show larger declines in some countries such as Italy and Spain.

    The moot question is whether the Indian economy will be among the worst hit from covid-19, going by the sharp fall in energy consumption.

    “The impact on the economy will depend on the period of lockdown, and the extent of easing of restrictions after that. Besides, potential fiscal measures to be announced by the central government for specific industries and MSME companies will play a big role," said Sanjeev Prasad, managing director and co-head at Kotak Institutional Equities.

    As things stand, India’s fiscal support for the economy (0.8% of GDP so far) lags other countries such as the US and Germany. Since the impact on its economy is greater owing to the more severe lockdown, clearly the government needs to do far more to support the economy.

    Data from National Load Despatch Centre show further softening of peak demand post 5 April. The recovery is contingent on return and availability of migrant labour, especially for construction and industrial sectors. “Some firms in the unorganized sector are not retaining workers. This can slow the recovery process as businesses may not be able to ramp-up quickly," said Perwez of JM Financial.

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    Published: 13 Apr 2020, 09:52 PM IST
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