Aug. 1 (Bloomberg) -- Keeping the lights on has emerged as Indian Prime Minister Manmohan Singh’s most immediate challenge.
The economy growing at its slowest pace in nearly a decade, the prospect of a drought, and having his government battered by 18 months of policy reversals and corruption allegations were bad enough. Two power-grid collapses in 36 hours have left 600 million people sweating through a failing monsoon, heaping more pressure on a prime minister whose legacy as an economic manager is coming under increasing scrutiny.
“This looks even worse than it would normally because there’s an impression that India’s economy is falling apart right now,” said Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund Management, of this week’s power network failures. “In any normal time, people may say that accidents happen. Right now everyone is looking at Singh to see what, if anything, he is going to do to fix the problem.”
India is in the throes of its worst ever power crisis after two days of blackouts that highlighted poor infrastructure and lack of investment in its generating and transmission sectors. Half of the country’s 1.2 billion people were left without any electricity for more than five hours yesterday, halting transport networks and forcing businesses and emergency services to rely on generators.
Power had been fully restored in New Delhi and across India’s northeastern grid as of 5:30 a.m. local time today, while 95 percent the northern and eastern grids were operating, according to an e-mailed statement from Power Grid Corp. of India Ltd.
India has missed every annual target to add electricity production capacity since 1951, resulting in a peak demand deficit of nearly 10 percent. Singh is seeking to secure $400 billion of investment in the power industry in the next five years as he targets an additional 76,000 megawatts in generation by 2017.
The disruptions weren’t sufficient to stop a rally in stocks, as the BSE India Sensitive Index, or Sensex, advanced for a third session yesterday. It was little changed today as of 12:38 p.m. in Mumbai. The rupee, which has lost 20 percent in the last year, strengthened, snapping two days of declines to climb 0.3 percent to 55.50 per dollar.
As engineers yesterday worked to reconnect nearly two dozen states to the national grid, the man who began the day as power minister, Sushil Kumar Shinde, ended it in charge of the home ministry, the cabinet’s third-most prominent position, after a reshuffle of Singh’s team of ministers.
Singh tacked the power portfolio on to the duties of Minister for Corporate Affairs Veerappa Moily, a move a former regulator said smacked of an inadequate government response to the crisis.
“Heads should be rolling, but instead the power minister is going to be made home minister,” said S.L. Rao, former Chairman of the Central Electricity Regulatory Commission, who was in charge of overseeing the industry from 1998 to 2001.
The government, which has said the outages may have been triggered by states exceeding the amount of power they are allowed to draw from the national grid, announced that it has tasked a committee with investigating events leading up to the shutdown.
India’s northern electricity grid collapsed for a second time at about 1:15 p.m. yesterday, knocking out the networks in the country’s east and northeast. These states together account for about 40 percent of India’s total electricity generating capacity, according to the Central Electricity Authority.
Commuter trains in the capital stopped running yesterday, forcing the operator, Delhi Metro Rail Corp., to evacuate passengers. NTPC Ltd., the biggest generator, shut down 36 percent of its capacity as a precaution, Chairman Arup Roy Choudhury said by telephone. More than 100 inter-city trains were stranded, Northern Railway spokesman Neeraj Sharma said, as the blackout engulfed states in the north and east.
Among those affected by the outage was 62-year-old Pramitha Devi, who was bidding to take the metro toward Ram Manohar Lohia hospital in New Delhi after her home dialysis machine was damaged by electricity fluctuations. A doctor who identified himself as R.C. Bhargava said the hospital’s generators had not been fully refueled since the July 30 grid collapse, leaving them with about two hours of electricity for the intensive care unit. “We have to make plans to shift critical patients to other hospitals,” said Bhargava.
Beset by political challenges, the blackouts are the latest problem to torment Singh’s government. Tussles over policy making with allies in the ruling coalition, corruption allegations and defeats in regional elections have weakened the administration since late 2010.
“It’s highly embarrassing in that it again shows we can’t provide basic services to our citizens,” said Mohan Guruswamy, chairman of the Centre for Policy Alternatives in New Delhi and a former finance ministry adviser. “It tells you a lot about the quality of management and their focus on maintenance.”
Proposals to allow foreign retailers to open supermarkets and lift overseas investment caps on the pensions and insurance sectors are among the policy initiatives of Singh’s second term to be rejected by opposition groups and coalition allies. By contrast, Singh as finance minister 20 years ago attacked regulatory burdens that held back private companies.
Power cuts are common across swathes of India as the country battles an average 9 percent shortfall in meeting peak power demand that the government says shaves about 1.2 percentage points off annual economic growth.
RBI on Hold
Improving infrastructure, which the World Economic Forum says is a major obstacle to doing business in India, is among the toughest challenges facing Singh as he bids to revive expansion in Asia’s third-largest economy that slid to a nine-year low of 5.3 percent in the first quarter.
The Reserve Bank of India, which has blamed infrastructure bottlenecks among others for contributing to the nation’s price pressures, yesterday refrained from cutting interest rates.
Indian consumer-price inflation was 10.02 percent in June, the fastest among the Group of 20 major economies, while the benchmark wholesale-price measure is more than 7 percent.
The last time the northern grid collapsed was in 2001, leaving homes and businesses without electricity for 12 hours. The Confederation of Indian Industry, the country’s largest association of companies, estimated that blackout cost companies $107.5 million.
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