The global credit rating agency mentions power disruptions will further depress business sentiment. It has already been dampened by slowing growth and the government's inability to implement measures to revive investment.
Although power supply interruptions are common in India, the scale of this week's disruption surpasses all others. Monday's blackout hit eight states, while Tuesday's reportedly affected 20 states, which have a combined population of about 700 million people.
The breakdown in the power grid appears to have been the result of a mismatch between electricity demand and supply. "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 ageing and unreliable distribution networks that struggle to deliver generated electricity to consumers," the report states.
"In addition, the sector reports higher-than-usual losses associated with distributing energy across an inefficient infrastructure and losses related to fraud and corruption by consumers who don't pay for the energy their use," it adds.
India 's prevalent subsidy system artificially depresses end-prices, leaving state-owned power companies to incur losses and making the sector unattractive for private investment.
Indians' use of and access to electricity is thus lower than in other fast-growing emerging markets. For instance, the latest available World Development Indicators reveal that as of 2009, just 66.3% of the population had access to electricity, compared with 98.3% for Brazil and 99.4% for China.
In addition, unreliable power supply limits the private sector's international competitiveness. "India's investment activity is unlikely to accelerate to levels required to meet the government's medium-term goal of 9%-10% real GDP growth targets until the government addresses infrastructure inadequacies. This week's outages are a reminder of the acute nature of these inadequacies," the report states.India has a power generation capacity of 205,340MW and plans to add 80,000MW in the five years ending March 2017. The country has missed previous capacity-addition targets. Chronic fuel shortages are hurting power generation and projects are faltering.
India's outlook has been lowered to negative from stable by two other rating agencies—Standard and Poor's (S&P) and Fitch. Both said slowing GDP growth and lack of credible steps for fiscal consolidation present significant risks to the economy.
India's growth slowed to a nine-year low of 5.3% in the March quarter. The Reserve Bank of India on Tuesday lowered its growth expectations for the current fiscal year to 6.5% from 7.5% it had predicted in April.
The electricity problem may become worse. India's power shortage during peak consumption hours—between 8-11am and 5-8pm—will surge from 124,995MW now to 199,540MW in 2016-17 and 283,470MW in 2021-22, according to the draft 18th Electric Power Survey of India, which has been seen by Mint.
The situation is alarming because the country's per capita electricity consumption, at 700 kilowatt-hour, is less than one-third the global average; yet it faces a 10.2% shortage during the peak hours.
"This failure is a wake-up call and offers an opportunity to upgrade and improve transmission and distribution infrastructure," said Amol Kotwal, deputy director of the energy and power systems practice for South Asia and West Asia at Frost and Sullivan, a consultancy.
S&P has recently said India could be the first among the so-called Bric (Brazil, Russia, India, China) nations to have its investment-grade rating lowered to junk status because of slower growth, ballooning deficits and political roadblocks to economic policymaking.
Source- Economic Times, DNA