CorporatePower capacity addition lag to impact economic growth targets
With the government having finally admitted that the current Plan period’s power capacity addition target of 78,700 Mw is likely to be missed by over 20 per cent, experts have raised concerns over the impact on the country’s economic growth.
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Half the Eleventh Plan period, beginning April 2007, has passed and the Union power ministry has made it clear that it is optimistic on addition of only 62,000 Mw of generation capacity till March 2012. “The shortfall will definitely have an impact. Things will become even more adverse if this shortfall increases. With each passing year, the government has been reducing the targets for capacity addition. So if it turns out that by the end of this Plan, the capacity added is just around 40,000 Mw, it will have a drastic impact,” said a senior analyst from an accounting and consultancy firm.
While failing to achieve capacity targets is not new, the country’s economic growth has become more energy-intensive now. The GDP energy elasticity index, a measure of energy intensity of an economy, is 1.2 for India. This means that with 1 per cent growth in GDP, the energy demand goes up by 1.2 per cent. The Integrated Energy Policy (IEP) had in 2006 noted this elasticity at 0.8, while planning for a 7-8 per cent GDP growth, but it has already crossed this projection.
The economic growth that had slipped due to the global slowdown to 6.7 per cent in 2008-09 from 9 per cent growth is expected to be a little over 6 per cent in the current year. In the first quarter ending June 30, the country’s GDP grew 6.1 per cent.
The shortfall in power capacity addition, though, is projected to be lower than the historical misses. India failed to achieve these targets in the eighth, ninth and tenth Plan periods by over 50 per cent (see table).
Other experts, too, have voiced concern. “Missing five-year Plans (in capacity addition) is not a minor issue. Capacity addition should be usually around 20 per cent in excess of GDP growth,” said another analyst.
“To achieve and sustain a GDP growth rate of 8 per cent, your capacity addition should also grow by at least 9.6 per cent year-on-year,” he added.
The growth in India’s power generation capacity addition had entered into negative territory last financial year. GDP growth in the same period had come down to 6.1 per cent as against 9.1 per cent in the previous year (see table).
There are concerns on the impact of capacity addition lag on economic growth within the government, too. Last week, former power secretary P Abraham, currently also a member of the special advisory group formed by the power ministry to look into issues troubling the sector, had said, “In the past, we have been able to achieve only 50-60 per cent of the targeted capacity (referring to the last Plan’s achievement). It is pulling down the development of the country, its economic growth.”
He, however, added that the current Plan’s projected capacity addition — 60,000 Mw —“is better for the economy” as compared to the historic performance of achieving 50 per cent of the power capacity targets.
The IEP has prescribed that in order to achieve a sustained 9 per cent GDP growth rate, India’s primary energy supply will have to increase by 4-5 times the 2003-04 level. It has further recommended the power generation capacity increase six-fold from the current level of around 160,000 Mw to 960,000 Mw by 2031-32.
The National Electricity Policy 2005 had stated that India’s power generation requirement would grow to over 1,038 billion units by 2012, and meeting this demand would require power generation to grow at a rate of 9 per cent per annum.