Rating agency Moody's said that the widespread power outages this week reflects the inadequacy of India's infrastructure and have a negative impact on economic activity.

Triggering one of the world's worst power crisis ever, three grids collapsed this week affecting more than half of the country's 1.2 billion population.

Moody's Investors Service said that "The widespread power blackouts that hit India's (Baa3 stable) north, east and northeast regions on Monday and Tuesday have had a credit negative effect on the country's economic activity.”

According to Moody's, the power failure underscores inadequacy of the country's infrastructure, which inhibits growth by discouraging investment and impeding productivity improvements.

It said in a statement that "Power disruptions will further depress business sentiment, already dampened by slowing growth and the government's inability to implement measures to revive investment.”

Moody's said that “The magnitude of this week's disruptions would increase political pressure on the government to commit to greater capital expenditures in the power sector. This would put further pressure on the government's already stretched fiscal position.”

The statement added that "Unreliable power supply limits the private sector's international competitiveness. Existing and new facilities tend to invest in contingency generators and diesel stockpiles, thus diverting capital and undermining the scope for productivity improvements.”

Further, as infrastructure constraints raise relative cost of doing business in India, it would feed persistent inflation by way of supply side bottlenecks.

Moody's said that "India's prevalent subsidy system artificially depresses end-prices, leaving state-owned power companies to incur losses and making the sector unattractive for private investment.”

As per the rating agency, the domestic power sector suffers from inadequate coal supplies, inability to transport imported fuels to power stations located inland as well as unreliable distribution networks.

Source - IBN Live

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