Indian power shortage is Achilles heel of economy

May 30, 2013 11:07 am

Indian power shortage is Achilles heel of economy

By Victor Mallet in Noida, India

Electricity, 24 hours a day, is a service taken for granted in industrialised economies. But not in the industrial zone of Noida on the outskirts of New Delhi – and especially not in the baking heat of summer. “We hardly get 50 per cent of our requirement,” says S. Singhvi, finance director of Ginni Filaments, a textiles and clothing company with 5,000 employees across India. “Compared to last year, it’s getting worse.” With daytime temperatures reaching nearly 50C, and householders and farmers demanding ever more power for air conditioners and water pumps, he complains that Ginni’s Noida garment factory must deal with repeated power disruptions and run its own generators to produce electricity at five times the cost of the supply from the grid.

Averaged over the year, the Noida factory – where workers with high-tech sewing machines are making shirts for Benetton and other international brands – is supplied with electricity 80 per cent of the time.

“The remaining 20 per cent power is a very costly affair,” says Mr Singhvi. “We can’t stop the production. We have export commitments, so we have to go by the commitments, and even after spending a lot on the alternate power, we carry on our business.”

On Friday, the government is expected to release gross domestic product data for the last quarter of the financial year that ended in March showing that theIndian economy grew about 5 per cent in 2012-13, the lowest for a decade.

Of all the problems blamed for the slowdown over the past two years – recession in Europe, lack of skills in India, burdensome labour laws, port congestion, corruption and bureaucracy – the electricity shortage is now regarded by government and business alike as among the most serious.

“We used to think roads were the most important thing,” one government minister confided this week at a reception. “But it’s power, power, power.”

Economists who study the Indian economy – which hasprobably just overtaken Japan to become the world’s third largest measured by purchasing power parity, according to the Organisation for Economic Co-operation and Development – say that one of itspeculiar weaknesses is the small size of its manufacturing sector.

Given the low level of wages and availability of manual labour from its population of nearly 1.3bn, India should be competing fiercely against countries such as China in the export of manufactured goods. The fact that it is not doing so is partly down to poor infrastructure, including electricity.

“The power sector is extremely crucial for India’s economy,” says Anil Razdan, a former power secretary in the central government, noting the shortage of generating capacity, electricity distribution problems, arguments over pricing and a lack of domestic coal mined by state-controlled Coal India for the country’s power stations

The strains on India’s electricity network was brutally exposed last summer when the grid collapsed for the best part of two days across north India, leaving more than 600m people in the dark in an incident that became notorious as the world’s biggest power cut.

But even the southern state of Tamil Nadu, once a favoured destination for carmakers and other industrial investors because of its skilled workforce and reliable electricity, now suffers crippling power cuts for hours every day.

Standard & Poor’s, the credit rating agency, said this month that an inability to increase electricity supply would be one factor in any decision it made to downgrade India in the next year.

We have daily power cuts for two to three hours. Not only we, every single business, it runs on electricity and gets hampered if there is no electricity.

– Hitesh Tandon, design and print workshop manager

The Indian government is not standing still. It plans to add 88,000 megawatts of generating capacity – equivalent to about 100 regular-sized power stations – over the next five years. But the population continues to expand, and the average Indian to grow richer (even with anaemic GDP growth). That makes it hard to keep pace with the extra demand, let alone cope with the backlog of previous years.

Some cities and states, including Mumbai and Gujarat, boast of consistent electricity supplies even in the heat of summer, but the peak in demand from May to August spells misery for much of the rest of India – even if many homes and businesses have standby generators and uninterruptible power supply systems to keep critical machines running for a time.

“We have daily power cuts for two to three hours,” says Hitesh Tandon, who runs a design and print workshop in New Delhi. “Not only we, every single business, it runs on electricity and gets hampered if there is no electricity. Everyone has got alternate supplies for power, but again that doesn’t solve the problem entirely.”

Delhi, he says with envy, should be like Mumbai. But then he adds philosophically: “There are a lot of places that are even worse than Delhi – for example Noida.”