Why India is on the brink of an unprecedented power crisis

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New Delhi

India is on the brink of an unprecedented power crisis. More than half of the country’s 135 coal-fired power plants are running on fumes – as coal stocks run critically low.

In a country where 70% of the electricity is generated using coal, this is a major cause for concern as it threatens to derail India’s post-pandemic economic recovery.

Why is this happening? This crisis has been in the making for months. As India’s economy picked up after a deadly second wave of Covid-19, demand for power rose sharply.

Power consumption in the last two months alone jumped by almost 17%, compared to the same period in 2019. At the same time global coal prices increased by 40% and India’s imports fell to a two-year low.

The country is the world’s second largest importer of coal despite also being home to the fourth largest coal reserves in the world.

Power plants that usually rely on imports are now heavily dependent on Indian coal, adding further pressure to already stretched domestic supplies.

What is the likely impact? Experts say importing more coal to make up for domestic shortages is not an option at present.

“We have seen shortages in the past, but what’s unprecedented this time is coal is really expensive now,” said Dr Aurodeep Nandi, India Economist and Vice President at Nomura.

“If I am [as a company] importing expensive coal, I will raise my prices, right? Businesses at the end of the day pass on these costs to consumers, so there is an inflationary impact – both direct and indirect that could potentially come from this,” he added.

If the crisis continues, a surge in the cost of electricity will be felt by consumers. Retail inflation is already high as everything from oil to food has become more expensive.
Vivek Jain, Director at India Ratings Research described the situation as “precarious”.—Agencies

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