The impending coal shortage in India can become "another stagflationary shock" as the diversion of the fuel from non-power sectors to fulfill consumer needs will weigh on industrial output and increase electricity costs, according to Nomura.
Coal inventories at domestic power plants have fallen to nine days as of mid-April, which is lower than the average stock of 17 days held in April over the last five years, the research firm said in its report issued on April 19.
High demand and supply-side disruptions are responsible for a squeeze in coal inventories. It includes factors like increased demand for electricity due to “reopening of the economy” and the approaching “peak summer season” along with supply shocks as imported coal prices have soared.
“Supply has been disrupted due to the reduced availability of railway rakes to transport coal and lower coal imports.”
In October 2021, the country witnessed a similar crisis as coal stockpiles dwindled to the lowest in years.
The government has been pushing to increase coal production through commercial auctions, amending laws to allow sale of excess production, rolling auction, and speeding up operationalisation of coal mines.
“From a macro perspective, if coal supply does not catch up via higher domestic production or coal imports – this would result in more power outages in summer and a diversion of coal from non-power sectors (aluminium, cement and steel), weighing on industrial output and increasing electricity costs,” the report said.
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