Moody’s Says India Power Outages Are Credit-Negative for Economy

India’s worst power blackouts underscore infrastructure gaps and have a “credit negative effect” on economic activity, Moody’s Investors Service said.

“Power disruptions will further depress business sentiment, already dampened by slowing growth and the government’s inability to implement measures to revive investment,” Moody’s analysts led by Atsi Sheth said in a note today. “The magnitude of this week’s disruptions will increase political pressure on the government to commit to greater capital expenditures in the power sector, which will put further pressure on the government’s already stretched fiscal position.”

Two collapses in India’s grid in as many days this week left more than half the country’s population of 1.2 billion without electricity, underlining the need for better roads, ports and power plants. The failures add to the challenge of reviving an economy expanding at the weakest pace in nine years, hurt by fiscal and trade deficits and elevated inflation.

“India’s power sector suffers from inadequate fuel supplies for the country’s predominantly coal-fired power generation capacity, an inability to transport imported fuels to power stations located inland, and aging and unreliable distribution networks that struggle to deliver generated electricity to consumers,” Moody’s said.

The fiscal shortfall in Asia’s third-largest economy swelled to 5.8 percent of gross domestic product in the year ended March. The government projects unprecedented borrowing of 5.69 trillion rupees ($102 billion) for the 12 months that began April 1, even as it seeks to narrow the gap to 5.1 percent.

Kept at Stable

India’s sovereign credit outlook was kept at stable by Moody’s on June 25, contrasting with reductions to negative by Standard & Poor’s and Fitch Ratings this year.

“Certain recent negative trends -- such as lower growth, slowing investment and poor business sentiment -- are unlikely to become permanent or even medium-term features of the Indian economy,” Moody’s said at the time.

Moody’s, S&P and Fitch rate India at the lowest investment grade level. Prime Minister Manmohan Singh has pledged to revive growth as he fights to avert a downgrade to junk status.

Gross domestic product rose 5.3 percent in the first quarter from a year earlier, the least since 2003. Inflation has exceeded 7 percent for most of this year. The rupee has tumbled about 21 percent against the dollar in the past 12 months, the worst slide among major Asian currencies.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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