What the India Blackout Says About India's Frailties
In India, it’s a fact of life: The power goes out. A lot. With the country’s power plants and electricity grid unable to keep up with demand in the world’s second-largest country, blackouts are everyday occurrences. During peak periods, demand for electricity outstrips supply by an average of 9 percent, according to India’s Central Electricity Authority. Companies prepare themselves with backup generators for when, not if, the main supply goes down.
Even for India, though, the blackout that began in the early hours of Monday was extraordinary. Nearly 360 million people—more than the population of the U.S. and Canada combined—lost power across seven states in northern India when excessive demand and a shortfall in hydro power overwhelmed the electricity grid. The worst blackout in a decade started at 2:32 in the morning, leaving people sweltering in their homes and stopping service on trains and subways in Delhi.
Slightly more than 12 hours later, power resumed in the capital. R.N. Nayak, chairman of Power Grid Corp. of India, blamed the weather. India depends on the summer monsoon for much of its annual rainfall, but so far the rains have been disappointing this year. The less-than-normal rainfall has put strains on India’s hydroelectric power supply, which accounts for 19 percent of the country’s 205 gigawatt generation capacity but has dropped nearly 20 percent in the first six months of the financial year because of the delayed monsoon rains. “Dry monsoons resulted in less hydro power being in the grid, which is why some states may have reached beyond their scheduled supply purchases to meet demand,” Nayak told reporters on Monday in New Delhi.
The timing of the blackout could hardly be worse for the beleaguered government of Prime Minister Manmohan Singh. With the European debt crisis hurting many Indian markets, the country’s once-hot economy has slowed significantly, with growth now around 5.3 percent. Meanwhile, the poor monsoon has added to already-strong inflationary pressure as food prices rise. The wholesale price index (a reliable benchmark for inflation since the government has only recently recalculated the way it measures consumer prices) increased 7.25 percent year-on-year in June.
The sort of infrastructure problems that caused the blackout make tackling inflation that much harder for the government. The blackout “is symbolic of the infrastructure bottlenecks of the country,” says Tamara Henderson, a Bloomberg economist in Singapore. When India’s economic growth was closing in on China’s, many investors were willing to put up with chronic power shortages and other headaches. Now, though, “you have investors who would rather go to countries with the same growth potential but where you don’t have the hassle and the loss of productivity,” she says.
The government is pledging action. Power Minister Sushil Kumar Shinde has already commissioned a three-person task force to report back within 15 days on the cause of the power failure. Longer term, the government is trying to address the power problem. To narrow the gap between supply and demand, Prime Minister Singh’s coalition government has tried to increase spending on infrastructure, with the power network a priority. The government wants to spend $400 billion over the next five years on power-sector investment, adding 76 gigawatts of capacity by 2017. That’s on top of the 85 gigawatts of power India has added in the past 10 years.
The government isn’t just adding capacity; it is also raising prices through mandatory tariff increases. Before this year’s move to increase prices, some states hadn’t increased the cost of electricity for as many as eight years. That’s now changed. “Almost every state has increased tariffs,” says Vinod Chari, an analyst in Mumbai with Systematix Group. One problem India faces, though, is a shortage of coal to feed all its new coal-burning power plants. “The coal supply has not kept up with the power sector,” he says. “Plants are finding it difficult to get coal, any kind of coal.”