India’s coal shortage could become another stagflationary shock, says Nomura

Amid the country’s power utilities struggling with dwindling coal supplies due to rising power demand, brokerage firm Nomura said India’s coal shortage could become another ‘stagflationary shock’.

According to a research note by the brokerage, coal inventories held by the Indian power plants have nine days’ worth of stock as of mid-April, which, though up from around four days compared to October 2021, are much lower than the average stock of 17 days held in April over the last five years. It added that nearly 100 out of 172 power plants have critical coal stocks, i.e., less than 25 percent of the normative levels.

Citing the reason, the agency said, “Electricity demand has shot up, due to the reopening and as the country heads towards the peak summer season, but supply has been disrupted due to the reduced availability of railway rakes to transport coal and lower coal imports (high imported coal prices are a deterrent).”

The agency fears if the coal supply does not catch up, this may result in more power outages in summer and a diversion of coal away from non-power sectors weighing on industrial output and increasing electricity costs. Adding more, it said, “This could become another stagflationary shock.”

Recently, the ministries of coal and power have sought help from the Ministry of Railways to make more rakes available to transport coal, but the railways is faced with the challenge to divert more capacity towards the power sector without disrupting the supply chain for other sectors.

Meanwhile on April 13, the Ministry of Power recommended that power generation companies must try to import coal for blending up to 10 per cent and allowed “tolling” to thermal power plants to deal with rising power demand amid constrained supply of domestic coal. The ministry said that tolling facilities would be allowed up to 25 per cent of linkage coal for certain power generation companies to avoid long-distance coal transport.

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