CHENNAI: India’s annual electricity demand in 2019 grew at its slowest pace in six years with December marking a fifth straight month of decline, government data showed, amid a broader economic slowdown that led to a drop in sales of everything from cars to cookies and also to factories cutting jobs.

Electricity demand is seen as an important indicator of industrial output in the country and a sustained decline could mean a further slowdown in the economy.

India’s power demand grew at 1.1 per cent in 2019, data from the Central Electricity Authority showed, the slowest pace of growth since a 1pc uptick seen in 2013. The power demand growth slowdown in 2013 was preceded by three strong years of consumption growth of 8pc or more.

In December, the country’s power demand fell 0.5pc from the year-earlier period, representing the fifth straight month of decline, compared with a 4.3pc fall in November.

But in India’s western states of Maharashtra and Gujarat, two of India’s most industrialised provinces, monthly demand increased.

In October, power demand had fallen 13.2pc from a year earlier, its steepest monthly decline in more than 12 years, as a slowdown in Asia’s third-largest economy deepened.

Industry accounts for more than two-fifths of India’s annual electricity consumption, while homes account for nearly a fourth and agriculture more than a sixth.

The slower demand growth is a blow for many debt-laden power producers, who are facing financial stress and are owed over $11 billion by state-run distribution companies.

India’s overall economic growth slowed to 4.5pc in the July-September quarter, government data released in November showed, the weakest pace since 2013 as consumer demand and private investment fell.

“This reflects overall economic slowdown, because if you look at other high frequency data like diesel consumption, everywhere you are seeing contraction,” Rupa Rege Nitsure, chief economist at L&T Financial Holdings.

But India’s central bank will not have much scope to cut rates to stimulate the economy because inflation has been rising sharply and reached 7.35pc in December compared with 1.97pc in January last year.

Economists say India’s growth will continue to hover around 4.5pc levels in the Oct-Dec quarter.

“My estimate for the full year is around 4.7pc growth,” Nitsure said.

Interest rate-cuts on hold

A spike in India’s retail inflation in December has raised the chances the central bank will put rate cuts on hold for some time despite economic growth languishing at more than six-year lows.

Some economists believe the Indian central bank’s monetary policy committee (MPC) may even change its stance from ‘accommodative’ to ‘neutral’ at its February meeting.

The Reserve Bank of India (RBI) has cut rates by a total of 135 basis points in five moves in 2019 and shocked markets by holding rates steady at its December meeting.

“With CPI inflation likely to persist above the RBI’s upper band of the target range of 2-6 per cent, we cannot completely rule out the possibility of a shift in the policy stance to neutral,” said Upasna Bhardwaj, economist with Kotak Mahindra Bank.

India’s annual retail inflation rose to 7.35pc in December — its highest in more than five years, data showed on Monday, and well above the 6.2pc predicted in a Reuters poll.

Published in Dawn, January 15th, 2020