India Looks to Crack ‘Grim’ Power Situation in Upbeat Industrial Scenario

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Researched by Industrial Info Resources (Sugar Land, Texas). In a 2006-2007 survey of India’s economy, the country’s Finance Minister P. Chidamabaram said that there were signs of industrial resurgence with the sector growing from a low of 2.7% in 2001/02, moving up to 7.1% and 7.4% in 2002/03 – 2004 and then accelerating to 9.5% in the next two years to touch 10% in the current fiscal year. He added that the growth impulses within industry seem to have spread to manufacturing.

In this generally ‘up’ survey of the country’s prospects in the 11th Plan (2007 – 2012) the minister’s survey said that the power generation situation in the country was serious to grim. Only half the targeted increase in generation capacity during the 10th Plan (2002 – 2007) is expected to come up. The total losses of state utilities rose to over $6 billion in 2006–2007.

Rising fuel prices and a serious shortage of gas, power generation from a large number of power stations across the country had been hit badly, the survey said. The 10th Plan capacity addition would fall short by 43% at 23,250 megawatts against the targeted 41,110 megawatts.

During the current fiscal year, gross subsidies increased by over 10% to $9.1 billion while the rate of return of utilities deteriorated to a negative 27.4%, from a negative 24.8% in 2005-2006. The survey said that the State Electricity Boards and Utilities were in a financial mess, with total commercial losses rising to over $6 billion in 2006-2007 from $4.8 billion last year. But, optimistically, losses could decline to $4.9 billion next year.

The survey stressed the need to carry forward distribution reforms and said, “Unless effective steps are taken to slash transmission and distribution losses from 40% to 15%, the electricity situation will not improve.” The formation of a strong national grid was proposed as a ‘flagship endeavor’.

The survey repeated that a shortfall of gas supply to power stations was affecting power generation in a big way. Of the total gas-based capacity of 13,582 megawatts, power plants with a capacity of 10,999 megawatts are suffering from the fuel crunch. Higher prices of liquid fuels, including naphtha and diesel, have also resulted in generation losses at hybrid power plants. During the April-October period, generation loss due to gas shortages was estimated at 18.43 billion units. In the current fiscal year, the power sector is expected to import 7.4 million tons of coal.

On the positive side of the development of the industrial sector the survey said that the current growth phase is marked by the high rate of investment, measured in terms of gross domestic capital formation that has steadily climbed from 31.5% in 2004-2005 to 33.8% in 2005-2006. The December 2006 inflow of foreign direct investment (FDI) increased by a factor of six to $2.04 billion over the $350 million for the same month in 2005. This was the highest ever FDI inflow into the country in a single month. In the period April-December 2006 FDI inflow stood at $9.3 billion compared to 3.5 billion in the same period in 2005. A total of $12 billion of FDI is expected in the current fiscal year compared to $5.5 billion in the previous year.

Looking at the positive indicators in the survey and government actions to open up the economy, the country’s Industrial Economist said that India is now being compared to a ‘prowling tiger’ leaving its footprints on the world economy through takeovers and the growing competitiveness of its manufacturing, and its lead over China recognized in services, finance, banking and business sectors and institutional strengths. However, the journal said, looked at more realistically, both China and India are far from making headway in inclusive growth, India being at a greater disadvantage with a sizeable share of poverty. India accounts for less than 2% of the word economy and 1.1% of global trade in goods and services. (Estimates: EU15%, U.S. 12%, China plus 5%)

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