RBI rate cut will boost power demand, increase investments in energy projects

Power industry representative said RBI's rate cut should boost energy demand in India.

The Reserve Bank's first rate cut in five years will boost power demand in India, increase investments in energy transition as well as in oil and gas exploration projects, industry leaders told Moneycontrol on February 7, reacting to the MPC's decision.

The RBI’s six-member Monetary Policy Committee (MPC) cut the repo rate — the rate at which the central bank lends to other banks — by 25 basis points to 6.25 per cent, a first since May 2020. The comes barely a week after the personal income tax relief in the Union Budget, in an effort to boost consumption.

For the energy sector, industry voices believe the move could lead to an uptick in industrial activity, particularly in manufacturing. This, in turn, could increase the demand for power, particularly in industries that rely on electricity for production. As per the Central Electricity Regulatory Commission, India’s peak power demand could touch 270 Gigawatt (GW) this year.

Pankaj Kalra, CEO, Essar Oil and Gas Exploration and Production said the centra bank has signalled a supportive approach toward sustaining economic growth. “For the oil and gas industry, a lower interest rate environment will encourage investment in exploration, infrastructure, and energy transition projects, ensuring a stable and efficient energy ecosystem,” he said.

Amit Paithankar, whole-time director and CEO, Waaree Energies Ltd told Moneycontrol that the rate cut should bring down borrowing costs, thereby enhancing financial viability for businesses to transition or continue expanding on their respective renewable energy-related plans.

“This move should also boost demand from both enterprise as well as consumer segments towards adopting solar energy with resultant increase in demand for solar PV module manufacturing in the country,” Amit Paithankar said.

Chanchal Singh, CFO and advisor to the Board of Transformers and Rectifiers said the monetary policy will help the Transmission and Distribution (T&D) industry by increasing liquidity in the market.

“While the revenue will get the boost, on the profitability front, impact will be at least half a percent due to reduction in interest rate. Increase in consumption will eventually lead to increase in power consumption which will ultimately help out the industry,” Chanchal Singh told Moneycontrol.

On February 7, the Ministry of New and Renewable Energy said that India has achieved a historic milestone by surpassing 100 GW of installed solar power capacity. The move is a significant step towards India’s ambitious target of having 500 GW non-fossil fuel-based energy capacity by 2030.