Why the demand for power is surging despite India's growth slowdown

An almost 7 per cent growth in India’s electricity demand at a time when economic expansion has cooled to its weakest in six years may appear as a paradox at first glance. Clarity emerges with a closer look.

Power requirement growth in the nation’s most industrialized states decelerated in the April-July period, as demand from businesses cooled in line with the broader slowdown in Asia’s third-largest economy. The overall jump in demand, on the other hand, came mostly because of a rise in demand from states that happened to add a large number of households to the electricity network for the first time.

Tamil Nadu and Maharashtra, the nation’s hubs for making automobiles and ancillaries, witnessed demand grow 2.7 per cent and 1.4 per cent, respectively -- the slowest growth among large power consumers, data from the government’s Central Electricity Authority show.

The states of Haryana and Gujarat, also manufacturing hubs, saw electricity requirement growing at a weaker 2.9 per cent and 5.3 per cent compared with the previous year’s 7.5 per cent and 8.8 per cent, respectively.

Several automakers were forced to trim their workforce and shutter factories temporarily to manage inventories as a prolonged slowdown in domestic consumption spawned the worst downturn in car sales in almost two decades in July. Data on Friday showed GDP expanded 5 per cent in the three months through June from a year earlier, the slowest pace since March 2013.

Increasing demand from factories and commercial firms is key to revival of India’s money-losing electricity distributors. These consumers account for about half of the power consumption and pay more, helping subsidize others including poor households and farmers. Prime Minister Narendra Modi pledged to electrify every home, a promise that helped in his re-election this year but one that could prove costly for state utilities unless businesses purchase more electricity.

Data on diesel, another fuel closely tied to industrial performance, offers more evidence of the slowing factory demand.

Consumption during the April-July period grew 2.4 per cent from a year earlier, slower than 4 per cent expansion seen in the year-ago period, according to the government’s Petroleum Planning & Analysis Cell.

Stalling of new private sector projects, a slump in sales of automobiles, especially commercial vehicles, and a resulting slowdown in the auto parts industry contributed to slowing diesel consumption in the world’s fastest growing fuel market.