Govt's recent reforms won't help ailing power sector: CARE Ratings

Study says lockdown has sapped power demand, taking accumulated coal inventory to 51 million tonnes

The suite of reforms announced by Finance minister Nirmala Sitharaman in the fourth tranche of economic package is unlikely to calm the frayed nerves of the stressed power sector.

A study by CARE Ratings notes that the ailing power sector does not stand to gain from the reforms in the short term, with accumulated coal inventory climbing to 51 million tonnes (as on May 13). The nationwide lockdown imposed to contain the Covid-19 pandemic has sapped power demand. Power demand has tumbled significantly during the lockdown period primarily due to falling demand from commercial and industrial consumers.

In a month since India enforced lockdown to control the spread of Coronavirus, the electricity consumption has plummeted by 19.7 per cent, finds a new data tracker developed by researchers at the Energy Policy Institute at the University of Chicago.

“A drop of 19.7 per cent is a stark decline – larger than the reductions we have seen in China, the US, or Europe as a whole, and similar to Italy between mid-March and mid-April. This indicates that the Indian economy has been strongly affected by the Covid-19 pandemic and associated lockdowns, in line with the strict policy actions taken in India to stop the spread of the virus,” said Fiona Burlig, Assistant Professor at the University of Chicago Harris School of Public Policy. Burlig along with Anant Sudarshan, South Asia Director of the Energy Policy Institute at the University of Chicago and Steve Cicala, Assistant Professor at the University of Chicago Harris School Of Public Policy carried out the analysis presented in the tracker.

According to the institute’s report, declining and increasing consumption has historically preceded economic recessions and recovery.

“A major challenge with fast-moving economic events like Covid-19 is that our normal statistics which tell us about the health of the economy – GDP, job creation etc. – are reported relatively slowly (often quarterly). Electricity consumption is a metric that is available in near-real-time, making it informative about the overall health of the economy as well as the response of the economy to policies like the nationwide lockdown.”

In its latest string of reforms to draw private investments in coal and power distribution, the Government of India opened up commercial coal mining, offering 50 blocks immediately. Further, the government announced an outlay of Rs 50,000 crore over the next five years to create infrastructure for coal evacuation.

“Competitive participation of private sector in coal through bidding, liberalized entry norms, auction of partially explored coal block will end monopoly in the coal mining and will bring in efficiency and reduce dependence on imports. Investments of Rs.50,000 cr in the evacuation infrastructure shall remove supply chain bottlenecks to achieve self-reliance in coal production. Evacuation infrastructure would help to achieve government’s ambitious plan to augment coal production of Coal India Limited to one billion tonnes and coal production by private players”, the report from CARE Ratings noted.