Representative image (Reuters)
Coal shortages could hurt India’s economic growth going ahead, Capital Economics said in a note on September 13.
“Global coal prices are likely to stay high for a while yet, which will limit how much imports can rise. And if domestic production struggles to meet demand for an extended period, power outages and economic disruption would almost certainly follow,” Shilan Shah, senior India economist, said. “That’s a downside risk to our forecast for GDP growth of around 6.5 percent both this year and next.”
Energy supply concerns in India have heightened amid low inventories of coal. Coal-fired power plants only have on average enough stocks to last 10 days, Capital Economics said.
While this is still above the depths reached during the middle of last year, it is low by historic standards and falls well short of the target of 21 days set by the ministry of power and renewable energy, it added.
Power Minister Raj Kumar Singh last week did not try to allay concerns over shortages in an interview, the research house said. The minister had said that “we are watching the situation anxiously", adding that availability of power for the common man is non-negotiable.
Persistent coal shortages would almost certainly weigh on the economy while also stoking price pressures, Capital Economics said.
“One reason that inventories remain low, even as coal production has picked up, is that there has been a jump in electricity demand throughout the monsoon period, due to extremely hot weather,” it added.
India relies on coal for more than 60% of its electricity production.
The country has resorted to imports to avoid the coal crunch it faced last year which was triggered by prolonged monsoon showers.
Coal-fired power generation has jumped nearly 16% in the first week of September from a year ago, as warmer weather in several parts of the country lifted demand for cooling, Capital Economics said.
Meanwhile, the research house expects India’s central bank to continue pressing ahead with its hiking cycle given the continued hawkish commentary from the members of the rate-setting panel.
India's retail inflation returned to 7 percent territory in August from a five-month low of 6.71 percent in July. Inflation has now spent 35 consecutive months above the Reserve Bank of India's (RBI) medium-term target of 4 percent and eight straight months outside the central bank's 2-6 percent tolerance range. As such, the RBI is now on the brink of failing to meet its inflation mandate.
“The other concern is that industrial disruption resulting from energy shortages could stoke price pressure. In that scenario, the RBI would be forced to deal with economic weakness against a backdrop of still-high inflation,” Capital Economics said.
Checkout Budget Highlights 2023
