“To grow Indian GDP at a sustainable rate of 8%, power generated in India needs to grow by around 12%.” — Equitymaster.com

Blogger’s Note: Our friends at equitymaster.com, India’s foremost financial web portal, just published the following article on the correlation of India’s economic growth and its supply of power. We thought you might find it interesting.

Baltimore — (TFN): The growth of any economy calls for a matching rate of growth in the generation of power. However, in case of developing countries — since the growth in demand for power is generally higher than the global average — power generated needs to grow at a faster rate to achieve a certain amount of growth in the GDP.

Based on statistics provided by the Ministry of Power, the ratio of required growth in power generation to growth in GDP moved from 3 times in the first five-year plan (1951-56), peaked at 5 times during the third plan (1961-66), and now stands at nearly 1.5 times. This means that to grow the GDP at a sustainable rate of 8%, power generated in India needs to grow by around 12% (or 1.5 times of the expected GDP growth). But the correlation ends here.

The growth in power generation in India has almost never reached these levels. For instance, since 1995, India’s power generation capacity from all sources (coal, gas, hydro) has grown at a CAGR of just around 4%, from 81,000 MW to 130,000 MW currently. This is when power demand has consistently grown at above 7% to 8% levels per annum. We have been missing our yearly targets — even in the latest completed tenth five-year plan (2002-07), the actual generation capacity addition was less than 60% of the target.

Read on…

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