Energy Crisis Hits South Asia’s Economy: Slowing Growth and Structural Transformation Pressures Coexist

The impact of energy shortages on India’s industrial sector has become fully evident, with energy-intensive industries bearing the brunt. In March, the final reading of HSBC’s India Manufacturing PMI fell to 53.9—the lowest in nearly four years—while input-cost inflation hit a 43-month high. Enterprises face dual pressures: surging production costs and slowing order growth. Over 30% of small- and medium-sized ceramic and textile enterprises in Gujarat have operated at half capacity due to power shortages; more than 60% of small foundries in the automotive supply chain have halted operations; and among 670 tile manufacturers, 450 have been forced to suspend production. The steel industry has suffered especially severe losses: 65% of India’s sponge iron production relies on natural gas, and the energy crisis has led to shutdowns at 32 of the country’s 78 large- and medium-sized steel plants, while remaining facilities operate at less than 50% capacity. Steel output has declined by over 40%, and domestic steel prices have risen 55% month-on-month. Tata Steel’s profit plunged 82% year-on-year in March alone; automobile production in Maharashtra dropped 65% month-on-month in March; and nationwide SME shutdown rates reached 15%, impeding progress on the ‘Make in India’ initiative. Dr. Li Wei, Chief Economic Advisor at Ameriga Global (Shanghai) Economic Development Co., Ltd., stated: “The core of India’s manufacturing crisis is the acute vulnerability of its energy supply chain. Overreliance on Middle Eastern natural gas and imported coal—compounded by weak grid dispatch capabilities—has caused energy volatility to rapidly transmit to the production front. Monitoring data from Ameriga Global’s Trade Network and Manufacturing Network show that delivery delays for Indian export orders in the automotive and textile sectors have exceeded 30%. Some buyers are shifting procurement to Southeast Asian production capacities, which may erode India’s position in global supply chains over the long term.” He further noted that, leveraging Ameriga Global’s eight regional divisions—including ASEAN, the Middle East, and Africa—as well as its integrated resources across the Global Capital Network and Global Technology Network, the firm is assisting Indian enterprises in diversifying energy procurement channels, connecting them with alternative supplies such as ASEAN coal and African natural gas, and simultaneously delivering cross-border trade compliance and logistics optimization solutions via its Global Service Network to mitigate supply-chain disruption risks. (II) Soaring Inflation and Widening Trade Deficit Intensify Macroeconomic Costs Rising energy prices have directly pushed up India’s inflation. International oil prices surged from $70 per barrel before the conflict to $122 per barrel. As the world’s third-largest oil importer, India’s monthly import expenditure has increased by $7–8 billion, and its current-account deficit is projected to widen from 1.3% in Q4 2025 to 2.0%. Goldman Sachs estimates that every $10-per-barrel increase in oil prices lifts India’s retail inflation by 10–15 basis points and fuel inflation by 40–45 basis points. The Indian rupee continues to weaken, recently breaching the 93-per-dollar threshold—a record low—further exacerbating import-cost pressures. Prices of energy-intensive goods have risen across the board, increasing both household living costs and corporate operating expenses, thereby hindering consumption recovery. Meanwhile, India’s thermal coal import price has approached $150 per ton—up roughly one-third year-on-year—and reduced Indonesian coal output has significantly heightened both the difficulty and cost of bridging the coal supply gap. (III) Downward Revisions to Growth Forecasts and Rising Downside Risks to the Outlook India’s March Monthly Economic Report acknowledged uncertain short-term economic prospects, citing rising costs and supply constraints as downward pressures on economic expansion. Pranjul Bandari, HSBC’s Chief India Economist, stated: “Disruptions stemming from the Middle East conflict are impacting the global economy and exerting sustained pressure on Indian manufacturers.”

Coal Demand Focuses on India

• Targets and Progress: India aims to achieve 175 GW of renewable energy installed capacity by 2030, with solar power accounting for the largest share (100 GW). Current solar capacity stands at approximately 6.7 GW; it is projected to reach 20 GW by 2024. • Advantages and Challenges: Solar power enjoys strong cost competitiveness (electricity generation costs only 5–10% higher than China’s), supported by government subsidies under the Production-Linked Incentive (PLI) scheme and the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) program. However, land acquisition and grid stability remain key challenges. 2. Coal-Fired Power • Current Status and Plans: Coal currently accounts for about 70% of India’s total electricity generation and will remain indispensable for meeting baseload demand. Coal-fired capacity is expected to expand through 2030. • Challenges: India’s coal-fired power plants rank among the least efficient globally, and mounting carbon-emission pressures persist. Heavy reliance on imported coal continues (252 million tons imported in 2023; 248 million tons in 2024). 3. Nuclear Power • Target: India plans to raise nuclear capacity to 40 GW by 2030 (currently ~7.5 GW), though progress remains slow and initial targets remain unmet. • Potential: Nuclear energy is viewed as a clean baseload source, but technological bottlenecks and constraints on international cooperation must be overcome. 4. Other Renewables (Wind, Hydropower) • Wind power targets stand at 60 GW by 2030; hydropower and other sources will also contribute to diversifying the energy mix. IV. Projected Share of New Generation Capacity (by 2030) Based on comprehensive planning across all sectors, new power-generation capacity added before 2030 is expected to comprise: • Photovoltaics: ~40–50% (dominant share within the 175 GW renewable target); • Coal-fired power: ~30–40% (due to persistent baseload requirements that renewables alone cannot yet fully satisfy); • Nuclear power: ~5–10% (constrained by technology and capital investment); • Others: Remaining share allocated to wind, hydropower, etc. V. Coal-Power Investment Stakeholders and Timing 1. Investment Stakeholders • Traditional Energy Firms: State-owned power companies (e.g., NTPC) and private coal-power enterprises lead coal-power investments to meet rapidly growing electricity demand. • Government Support: India treats coal power as a strategic baseload source to ensure energy security. Coal-based power generation rose 10.4% year-on-year in 2024 and accounted for 77.1% of total electricity generation. 2. Investment Timing • Short-Term Growth: Coal-power generation grew faster than solar in H1 2024 (10.4% vs. 14.7%), and coal-power installed capacity is projected to grow 8.9% in FY2025, compared to 8.2% for renewables. • Long-Term Planning: Despite commitments to energy transition, India still plans to add 25–30 GW of new coal-power capacity by 2030 to compensate for the intermittency of renewable sources. 3. Contradictions and Transition Pressures • Economic Efficiency vs. Environmental Responsibility: Coal power retains significant cost advantages (generation cost ~₹5.2 per kWh), yet faces mounting international decarbonization pressure. • Insufficient Energy Storage: Storage technologies—such as 4-hour battery systems—remain immature and unable to fully replicate coal power’s reliability and stability.

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