India's collapsing electricity infrastructure

Another piece of the puzzle concerning India’s economic slowdown

Marginal revolution,

20 April, 2012

Could the Indian slowdown be the most important (but still somewhat neglected) story in the world right now? Vikas Bajaj reports:

…the country cannot get enough fuel — principally coal — to run the plants. Clumsy policies, poor management and environmental concerns have hampered the country’s efforts to dig up fuel fast enough to keep up with its growing need for power.

A complex system of subsidies and price controls has limited investment, particularly in resources like coal and natural gas. It has also created anomalies, like retail electricity prices that are lower than the cost of producing power, which lead to big losses at state-owned utilities. An unsettled debate about how much of its forests India should turn over to mining has also limited coal production.

The power sector’s problems have substantially contributed to a second year of slowing economic growth in India, to an estimated 7 percent this year, from nearly 10 percent in 2010. Businesses report that more frequent blackouts have forced them to lower production and spend significantly more on diesel fuel to run backup generators.

…In the last year, the nation’s power problem has grown acute, with the gap between demand and supply jumping to 10.2 percent last month, from 7.7 percent a year earlier. In some states like Andhra Pradesh, where Nellore is, and in neighboring Tamil Nadu, blackouts have become so common that many factories report getting more electricity from diesel generators than they do from the power grid, at a cost that is roughly three times higher.