Kurukshetra IAS Academy Blogs

1. Core sector output growth spurts to 6.7% in Feb.

Double-digit upticks in the natural gas, cement,

coal industries lead to three-month high levels

Fertilizers saw a fall of 9.5%; this is the second month in a row that output has taken a tumble

As both Union and State governments rush to meet targets, infrastructure will stay at 6% in March too

India’s eight core sectors’ output growth spurted to a three-month high of 6.7% in February, led by double-digit upticks in coal, natural gas and cement even as fertilizers’ production fell 9.5% to record the sharpest contraction since May 2021.

January’s Index of Core Industries (ICI) was revised to reflect a 4.1% rise, compared with the previous estimate of 3.6%, but that remained the slowest growth in 15 months. This is the second month in a row that fertilizers’ output dipped year-on-year, and marks the first such streak in two years.

In absolute terms, overall output levels were at a three-month low and 4.9% below January’s levels, which had marked a ten-month high. In sequential terms, the only segment to record an uptick over January’s production level was cement (up 1.74%).

Crude oil production

In year-on-year terms, crude oil production grew at an all-time high pace of 7.9% in February, although that was aided by base effects as output had dropped 4.9% in the same month last year.

Natural gas output grew 11.3%, which was the highest in two years. The upticks in February also marked a four-month peak for cement (10.2%), electricity (6.3%), and coal (11.6%).

While steel production growth eased slightly to 8.4% in February, refinery products recovered from a 4.3% contraction in January to rise 2.6%.

As the ICI has a weightage of slightly over 40% in the Index of Industrial Production (IIP), economists expect industrial output growth to recover from the 3.8% uptick recorded in January.

ICRA chief economist Aditi Nayar reckoned the IIP would record an expansion of 6%-6.5% in the month of February, while Bank of Baroda’s chief economist Madan Sabnavis pegged it in the range of 4% to 5%.

“The 6.7% uptick in February reversed the declining trend seen in December and January and cumulative growth so far in 2023-24 has been smart at 7.7%, coming over the 6.8% growth last year,” Mr. Sabnavis said.

CareEdge Ratings’ chief economist Rajani Sinha said IIP growth may pick up to around 5.5% in February, while India Ratings and Research projected it to rise 5%.

As both the Union and State governments rushed to meet their capex targets in March, the core infrastructure sectors’ growth is expected to stay around 6% this month as well, said India Ratings’ economists Sunil Kumar Sinha and Paras Jasrai.

2. Understanding India’s coal imports

The spectre of electricity shortages rises again as hot weather descends across the country. In recent years, increasingly unpredictable weather patterns and a fast-growing economy have led to big increases in electricity demand, the meeting of which in a reliable way becomes a challenge. But some of the discourse in this context deserves greater scrutiny.

More about logistics

First, a shortage of domestic thermal coal, the kind used in electricity generation, is primarily blamed for the electricity shortage. Consider August, the month with the greatest electricity shortage in 2023, though the story is similar even in summer months. Electricity shortage in August was about 840 million units due to a poor monsoon, in turn leading to increased demand and reduced supply from some sources. It is pertinent that this shortage was just 0.55% of demand that month. Moreover, 0.6 million tonnes of domestic coal would have addressed this shortage even as over 30 million tonnes of coal were available in coal mines in August and September. This illustrates that the challenge is not really about the availability of domestic thermal coal per se, but of insufficient logistics to move the coal to power plants. A recent Ministry of Power advisory corroborates this, saying “supplies of domestic coal will remain constrained due to various logistical issues associated with railway network”.

Addressing the logistics challenge would take some time. How best to deal with shortages in the meantime? Since coal is currently India’s best bet to meet shortages, the obvious answer is alternative sources of coal. This leads to the second conflation — that the only alternative source is imports. Coal India Ltd. sells about 10% of its production, or 70 million tonnes-80 million tonnes each year through spot auctions. While the price of such coal is higher than the coal that many plants get, it is much lower than the price of imported coal. Though some plants may not have logistics constraints to get coal from the auction sites, even such plants do not consider auctions as an alternative.

The issue of imports

Some thermal coal imports to blend with domestic coal may be required even if auctions are used. The question then is about how much of imports for which coal plants. The Ministry of Power issued a recent advisory to power generators to continue monitoring their coal stocks until June 2024 and import coal as required (up to 6% by weight).

This was widely reported as extending a “mandate” for importing 6% coal. It is convenient, as some might say, for such advisories to be interpreted as mandates by many coal-based generators since the increased costs arising out of coal imports can be ‘passed through’ to electricity consumers via distribution utilities. Therefore, it is up to electricity regulators, responsible for ensuring prudence of electricity costs, to not interpret such advisories as mandates.

There is little justification to treat the MoP advisory as a mandate, given that the letter itself repeatedly uses the word “Advisory” and the operative sentence reads “… opt for blending as per the requirements …”. Moreover, preliminary analysis shows that a mere 0.3% additional blending in addition to the 3.4% imported coal that was blended between April to December 2023, would have eliminated all shortages in that period.

Thus, the third misleading narrative is that 6% coal imports are necessary when it is just an indicative upper limit of imports that may be required.

Interpreting the advisory as a mandate can have significant cost impacts, with coal still supplying over 70% of India’s electricity. Mandatory blending of 6% imported coal by weight for all coal-based generation, instead of the current blending levels, can increase the variable cost of coal-based electricity by 4.5%-7.5%. Indeed, as in the report on Annual Rating of Power Distribution Utilities, power purchase costs increased by 15% in FY23 due to increases in demand, coal imports and prices of imported coal. Regulatory mechanisms that enable such blending ‘automatically’ without even consulting the distribution utilities concerned run the risk of ‘authorising’ such higher costs for a much longer period than may be justifiable.

Generation and location

Not all power plants are the same. Typically, the plants that generate the most (the so-called pit-head plants) are situated close to mines, far away from ports and do not face coal shortage. Shortages in periods of high demand are more likely in plants far away from mines which typically do not generate as much. Thus, there is no justification to interpret the advisory as a mandate to import 6% coal by weight for all plants in the country.

Clearly, the discourse around coal shortages in the country needs course correction. It cannot be assumed that coal imports are the default way to address shortages. The fundamental challenge is to overcome the logistics bottlenecks that are preventing coal reaching the locations where required. In the interim, regulatory commissions and distribution utilities must ensure that all coal-based plants are alert to the possibility of coal shortages and identify the cheapest alternative sources — which may not be imports — to bridge the gap. Otherwise, the hapless consumer would be left to pick up the tab for inefficient coal procurement.

3. ‘RBI’s MPC likely to hold rates on April 5’

The Reserve Bank of India’s Monetary Policy Committee (MPC) is likely to keep the policy repo rate unchanged at 6.5% and retain the policy stance of ‘withdrawal of accommodation’ at the conclusion of its meeting on April 5, Goldman Sachs opined on Thursday. The RBI would also likely voice optimism on growth, and continue to reiterate its commitment to achieving the 4% headline inflation target.

“High frequency data in Q1 CY24 shows a rebound in consumption activity, but softer investment activity as the government front-loaded capex in 2023,” the U.S.-based investment banking and securities firm said in a report. “We forecast headline inflation at 5.2% in Q1 CY24, driven by high food inflation, even as core inflation has declined below the RBI’s target of 4%,” Goldman added.

‘Remain cautious’

“We expect the RBI to take comfort from declining core inflation, slightly soften its hawkish forward guidance, but remain cautious given upside risks to food inflation from weather shocks, and repricing of the Fed funds rate easing path,” Goldman observed.

“We forecast one 25 bps cut each in Q3 and Q4 CY24,” the firm added.

4. ‘Only 4% firms in India ready to tackle cybersecurity risks’

Only 4% of firms in India have a ‘mature’ level of readiness needed to be resilient against modern cybersecurity risks, said Cisco in its ‘2023 Cybersecurity Readiness Index’.

Enterprises continue to be targeted with a variety of techniques that range from phishing and ransomware to supply chain and social engineering attacks, as per the index.

While they are building defenses against these attacks, they still struggle to defend against them, slowed down by their own overly complex security postures that are dominated by multiple-point solutions, Cisco observed.

Readiness is critical as 82% of respondents said a cybersecurity incident is likely to disrupt their business in the next 12 to 24 months. Some 99% of the companies are getting ready to take action to address newer cyber challenges and they are also planning to increase their cybersecurity budgets in the next 12 months.

These data were found after a survey among more than 8,000 private sector security and business leaders across 30 global markets including India.

“In an era witnessing unprecedented proliferation of devices and rising AI-powered cyber attacks, it’s critical that organizations not only increase their investment in cybersecurity but also embrace an integrated platform approach to protect the five key pillars and take steps to reduce their security readiness gap,” said Samir Kumar Mishra, Director, Security Business, Cisco India and SAARC.

5. China sends glacier water from Tibet to climate-hit Maldives

China has sent more than a million bottles of water from melting Tibetan glaciers to the Maldives, officials said on Thursday, a gift from the world’s highest mountains to a low-lying archipelago threatened by rising seas.

The Indian Ocean nation of 1,192 tiny coral islands is on the frontlines of the climate crisis, with salt levels seeping into the land and corrupting potable water, leaving it dependent on desalination plants.

Scientists say glaciers in the Himalayas are melting faster than ever due to climate change.

The Maldives Foreign Ministry said the water was a gift from Yan Jinhai, the chairman of the Xizang Autonomous Region, or Tibet, lying more than 3,385-km away on the far side of the world’s highest mountain range. The consignment of mineral water packed into 90 sea containers arrived last week and had been unloaded in the capital Male, a port authority official said.

“The Chairman of Xizang Autonomous Region announced his wish to donate 1,500 tonnes of drinking water… during his official visit to the country in November,” the Maldives Foreign Ministry said in a statement.

‘Water shortage’

The Ministry rejected allegations on social media that the imported water was for the consumption of pro-China President Mohamed Muizzu, who came to power last year on an anti-Indian platform.

“The government of Maldives has decided to utilise the water to provide assistance to islands in case of water shortage,” it said.

The United Nations Intergovernmental Panel on Climate Change (IPCC) warned in 2007 that rises of 18 cm-59 cm would make the Maldives virtually uninhabitable by the end of the century.

Mr. Muizzu promises his country — 80% of which is less than a metre (three feet) above sea level — will beat back the waves through ambitious land reclamation and building islands higher.

The congested capital island of Male has already run out of groundwater for drinking and depends on expensive desalination plants to supply the local population.

A fire at the water purification plant in Male in December 2014 disrupted supplies for almost a week, causing panic.

Both India and regional rival China rushed ships to produce drinking water until the desalination plant was fixed.

Better known for its white sand beaches and luxury tourism, the Maldives also straddles strategic east-west international shipping routes.

New Delhi considers the Indian Ocean archipelago to be within its sphere of influence but the Maldives has shifted into the orbit of China — its largest external creditor.

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