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Why Demand for Power Is Surging Amid India’s Growth Slowdown

Rajesh Kumar Singh and Debjit Chakraborty

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An almost 7% 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 requirement from states that happened to add a large number of households to the electricity network for the first time.

Uttar Pradesh, India’s most populous state that added the maximum number of new household power consumers, saw demand rise 9%, while Rajasthan saw a demand growth of 11% during the four-month period, data from the government’s Central Electricity Authority show.

States such as Tamil Nadu and Maharashtra, the nation’s hubs for making automobiles and ancillaries, saw demand grow at 2.7% and 1.4%, respectively -- the slowest growth among large power consumers, data show. Haryana and Gujarat, also manufacturing hubs, saw electricity requirement rising at a weaker 2.9% and 5.3% compared with the previous year’s 7.5% and 8.8%, 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% in the three months through June from a year earlier, the slowest pace since March 2013.

Power demand growth “is definitely something we should take note of,” Krishnamurthy Subramanian, the chief economic adviser in the finance ministry, said on Friday after GDP data showed an uptick in electricity demand in the April-June quarter. “It may indicate there are some green-shoots toward a higher growth rate.”

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% from a year earlier, slower than 4% 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.

(Adds comments from government adviser in sixth paragraph)

--With assistance from Vrishti Beniwal.

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net;Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Karthikeyan Sundaram, Jeanette Rodrigues

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