India Faces Widespread Power Outages Amid Severe Heatwave - Services Sector PMI Indicates Robust Growth

Key Takeaway

• India faces widespread power outages amid a severe heatwave, with 38% of surveyed households reporting daily blackouts, some lasting up to 12 hours.
• India's services sector PMI rose to 61.4 in May, indicating robust growth and contributing significantly to the economy's expected expansion of over 7% this fiscal year.
• India seeks a joint long-term oil supply deal with Russia involving state-run refiners and Reliance Industries Ltd., aiming for discounted prices amid tighter US sanctions.

Power Outages Amid Heatwave

India is experiencing widespread power outages as a severe heatwave has driven electricity demand beyond the peak levels forecasted for this month. According to a survey conducted by the advocacy group LocalCircles, 38% of the 15,000 households surveyed reported daily blackouts. While most of these outages lasted four hours or less, some respondents experienced power cuts for up to 12 hours. This is a significant increase from a similar survey conducted in February, where only 20% of respondents reported daily shortages.

The Ministry of Power has stated that coal stocks, which provide more than 70% of the country's power, are "extremely healthy." The current coal stock stands at 45 million tons, compared to 34 million tons last year. Despite this, peak electricity demand in the country reached 235 gigawatts on Wednesday, surpassing the power ministry's forecasts for May. "The measures we have taken have enabled us to meet this demand and will continue to do so," said a Ministry of Power spokesperson. In New Delhi, electricity demand peaked at 8 gigawatts, setting a new record.

Services Sector Growth

India's services sector has shown significant growth, boosting the overall economy. According to a flash survey by HSBC Holdings Plc., the services purchasing managers' index (PMI) climbed to 61.4 in May from 60.8 in April. The manufacturing PMI, however, eased slightly to 58.4 from 58.8. The composite index, which combines both services and manufacturing, jumped to 61.7. A PMI reading above 50 indicates expansion in economic activity compared to the previous month.

"The latest data showed strength in new export orders for both sectors, which rose at the fastest pace since the series started in September 2014," said Pranjul Bhandari, chief India economist at HSBC. This optimism has led firms to increase their staffing levels. The services sector, which contributes more than 50% to India's gross domestic product (GDP), has been crucial in creating jobs and bolstering growth. India's economy is expected to expand by more than 7% in the current fiscal year, providing the central bank with room to focus on controlling inflation.

Russia Oil Deal Negotiations

India has made an unusual request to its state-run oil refiners and private processor Reliance Industries Ltd. to jointly negotiate a long-term supply deal with Russia. The government aims to secure at least a third of their contracted supply from Russia at a fixed discount to shield the economy from volatile oil prices. However, Reliance is unlikely to share sensitive information with state oil refiners due to their competitive relationship in the domestic fuel market, complicating the government's efforts at collaboration.

India has been a major buyer of Russian crude since the invasion of Ukraine, but tighter enforcement of US sanctions has made the trade more challenging, leading refiners to purchase more expensive oil. State refiners have previously held joint talks with suppliers in the Middle East and West Africa to secure better terms, but it is rare for India to seek help from a private refiner. State refiners are seeking oil at a discount of more than $5 a barrel to Dated Brent, but Moscow is offering a discount of $3 and is unwilling to budge. Indian Oil is the only state refiner to have had a long-term supply deal with Russia, but it expired at the end of March and has not been renewed due to disagreements on volumes and price.

Management Quotes

• Ministry of Power spokesperson:

  "Coal stocks are extremely healthy. The current coal stock is at 45 million tons, compared to 34 million tons last year."
  "The measures we have taken have enabled us to meet this demand and will continue to do so."