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Power shock and more… - Views on News from Equitymaster
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  • Aug 21, 2008

    Power shock and more…

    Move over oil shock...
    ...its power shock for India! The allocation of US$ 193 bn for power sector for the 11th Five Year Plan looks significant enough to display the government's commitment towards solving India's power crisis. However, the same seems to be inconsistent with the growth in demand and power production is unlikely to satiate the demand for electricity this year. As per the recent report of Central Electricity Authority (CEA), India's peak electricity shortage may widen to 18.1% in FY09 from 16.6% in FY08 as demand will outstrip supply in the world's second-fastest growing and second-most populous nation. CEA estimates that the peak demand for power in FY09 may rise to 120,109 megawatts (MW) against the availability of 98,408 MW. As if this were not enough, two of the most industrialised states in the country, Maharashtra and Gujarat will endure some of the highest power shortages of 23.0% and 22.6% respectively. While the government is targeting the power sector to add 78,700 MW of new generation capacity by the end of the plan period (FY12), of which 10,178 MW is to be commissioned by FY09, the power generating companies continue to be dogged by fuel, equipment and labour shortages.

    'India is critical'
    ...says the largest banking company in the world, Citigroup Inc. The largest US bank by assets that has posted US$ 55 bn (approx. Rs 2.4 trillion) in losses and write-downs in 2008 and cut some 14,000 jobs worldwide, has recently announced a reorganisation of its Asia-Pacific business. It may be noted that Citibank has one of the largest franchises amongst foreign banks in India and owns 11.8% stake in HDFC Ltd.

    Given the growing opportunities in the SME (small and medium enterprises) and consumer banking space, Citibank has clarified that the rationale behind the Asian restructuring is to focus on India and its growing importance for the bank. The bank has also stated it has been retaining profits locally and investing in India to improve the capital adequacy. Thus while the behemoth may have bitten the dust in the West, the growth of the Indian middle class, healthy and growing companies and the government's increasing focus on infrastructure are some of the potentials that are still enticing for it.

    India Inc. to invest US$ 40 bn in FY09
    The Reserve Bank of India RBI, in its August 2008 bulletin, states that Indian private sector companies will invest US$ 40 bn in fresh projects in FY09, a 33% decline from US$ 60 bn they had spent in FY08. Citing the importance of infrastructural activity, the report suggests that infrastructure projects accounted for nearly half of the total investments in FY08, up from 36% in FY07. Nearly 72% of the total investments in infrastructure were in 71 power projects followed by 52 technology parks and special economic zones. Among the states that have been at the forefront of industrial investment, Gujarat took the first place with 22% of the total investments in 100 fresh projects at a total investment of Rs 624 bn; followed by Maharashtra with 12.7% and Orissa with 10.9%. Having said that, since investment is a key indicator of growth plans by companies and fresh investment is essential for sustaining economic growth, the central bank believes that the lower investment planned this year indicates lower growth prospects. The central bank expects the economy to expand by around 8% in FY09 on the back of an 8.8% average growth in the last five years.



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