With the New Year upon us, it is always fun to read predictions for the year ahead. The Telegraph’s What the Year Will Be might be my favorite. For their part, ABC News featured a story about technologies that we should see in 2015 according to the 1980’s Back to the Future movie. Personally, I’m still awaiting my hoverboard.
While reading these predictions, I concluded that it is exceedingly difficult to find any serious analyst with a pessimistic outlook toward India’s economy.
This is understandable. In recent years, India’s rapid economic growth has declined from double digit rates in 2010 to just over five percent last year. Now, many analysts expect it to begin to tick upwards. While only time will tell if this will be the case, there are a number of compelling reasons to be bullish on India.
For the first time in over 30 years, the country has elected a one-party majority in their parliament and selected Narendra Modi, often described as a reformist prime minister. The country is in dire need of many reforms over entire sectors of its economy, yet Prime Minister Modi might not be moving as fast to introduce these reforms as many expected.
According to the Wall Street Journal, theft is causing India to lose upwards of one-third of enerrgy production, and inefficiencies in the national supply chain have burdened distributors with billions of dollars in debt.
But a more efficient grid will not completely satisfy India’s energy demands. Blackouts can last all day in some regions. India’s energy policy is similar to President Obama’s “All of the above approach” in that the country is expanding its use of coal plants and other high emissions electricity plants. The country is also slated to invest up to $100 billion in solar power between now and 2025.
To his credit, Prime Minister Modi has been fervently active in working to source other power sources. India is one of the few countries in the world where the percentage of the population without electricity is actually growing. According to the World Energy Outlook, the total number of Indians without reliable access to electricity increased by 13 million people, to a total of 306 million.
A potential solution to this problem lies to India’s north in the Himalayan states of Bhutan and Nepal. Both countries have access to enormous amount of untapped potential hydroelectric energy.
It is worth noting that several months ago, to compliment its agreement with Bhutan, India signed a power trade agreement (PTA) with Nepal. India and Nepal have had “on-again off-again” discussions for years, and Prime Minister Modi gave negotiators on both sides a 45-day deadline to have a framework agreement in place. Within 30 days Nepal and India had signed the framework agreement.
This agreement has potentially major implications and might set in motion a new regional South-Asian integrated power infrastructure. But for now, it will likely begin to lead to the development of at least 40,000 megawatts of Nepal’s untapped hydropower. Although many of the initial developments are bilateral, it is expected that the private sector will take an important role in realizing Nepal’s hydroelectric generation potential.
As a follow-up to our recent conversation with the Udaya Group, where we discussed this power trade agreement, I recently spoke with Shubhomoy Ray of Finnacle Capital Advisors to discuss the implications of the power trade agreement.
But Prime Minister Modi has not rested on his laurels with the completed PTA. Just last month, he and Russia’s President, Vladimir Putin, signed an agreement to develop 10 nuclear power plants.
Power is vital to India’s development, and the new government is promoting energy conservation as well; Modi has personally encouraged the use of power saving LED lightbulbs. India has a long way to go to achieve its ‘2047’ energy aims and ambitions. The subcontinent may soon be transformed as India’s northern neighbors begin providing a long-term solution to one of the country’s most pressing problems.
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