3 days ago
What the cooling power demand in industrial India foretells
Demand for power in India's top six industrialized states flattened in April and cooled in May, pointing to a potential fall in factory production at the start of the new financial year.
Data from the Grid Controller of India showed that total daily demand in May across Gujarat, Maharashtra, Andhra Pradesh, Uttar Pradesh, Tamil Nadu and Karnataka fell 5.7% from a year ago. As of 25 May, cumulative demand in these states stood at 59.58 billion units (BUs). In the same month, the HSBC manufacturing Purchasing Managers' Index hit a three-month low, as new orders and production slowed.
In April, power demand across the same states was flat at over 75 BUs.
While a break-up of industrial, consumer and household power consumption is not available yet, demand in industrialized states is seen as a proxy for overall industrial power consumption. Since industries account for roughly 45% of total power demand, weakness in these states could indicate a broader slowdown in industry.
Industrial wheels slowing
'The major reason for the reduction in the industrial power demand has been the slowdown in economic activity, particularly in mining and manufacturing sectors, where the industrial output has remained weak in the months of March and April 2025," Mohammad Saif, partner, strategy and transactions at EY India, said.
Saif noted that while manufacturing growth fell to 3.4% in April 2025 from 3.9% in April 2024, mining, another power guzzler, shrank 20 basis points compared to a growth of 6.8% in April 2024.
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India's overall power demand in May (25 days) fell 4% y-o-y to 148.71 BUs, and grew just 2.2% in April, compared to a 7% growth in March. To be sure, this year's summer has been less harsh than in the previous years, and early rains have dampened power demand across much of the country.
Queries emailed to the ministries of power and finance remained unanswered.
Ashok Sreenivas, group coordinator at Prayas Energy Group, an energy think tank, said that a tapering of macro indicators like the index of industrial production (IIP) may mean that growth in demand from industry has somewhat eased. In April, industrial output grew 2.7%, the slowest in eight months, down from 3% in March and 5.2% in April 2024.
'Industrial load is coming down," a top executive at one of India's largest green energy firms said on condition of anonymity. 'There has been a mismatch in the demand forecast." Yet another industry executive confirmed that industrial demand on power exchanges has been stagnant, with demand from households, via discoms, driving a large part of the trading activity.
"From the perspective of commercial and industrial (C&I) and the overall demand, the market witnessed rapid demand and capacity growth post covid. So, an impact in the demand would be because of several factors. There are cycles. The current slowdown is likely to be a blip or a short-term phenomenon. We can see an uptick post monsoon or even mid-monsoon. From a longer term perspective, the C&I market and the energy demand as a whole is seen growing for the next few years," Rahul Mishra, head of C&I at BluPine Energy, a renewable energy platform.
Cooling production
In March, overall power production nationwide grew 6.3% in March against 8.6% a year earlier, and 1.1% in April against 10.2% a year earlier.
However, others see this as a trend that will play out soon. Sachchidanand Shukla, group chief economist at Larsen & Toubro said that while power demand remains high in May because of rising temperatures, unseasonal rains this year and early onset of monsoon have moderated the demand. He also doesn't see the slowdown in the IIP as indication of a general weakness in demand conditions.
'Another repo rate cut expected from the RBI at the next monetary policy on 6 June, the record ₹2.69 trillion dividend to government announced already, and the above-normal monsoon are growth-supportive," said Shukla. 'The estimate of a 6.5% real GDP growth for the first quarter and an overall expansion of 6.5% in the full financial year are fair and reasonable."
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India's GDP growth rate for the January-March quarter came in at 7.4%, backed by agriculture and construction, surpassing estimates. The strong quarterly showing–the fastest in the fiscal year–pushed overall growth in 2024-25 to 6.5%, according to data released by the National Statistics Office. Experts, however, are cautious about the outlook.
'Key indicators are showing signs of slowing down. However, the GDP growth number for Q4 FY25 came as a surprise against the expectation of 6.5-6.7%. It came on the upper side at 7.4%. Further indications would be required to see how the industrial and economic growth fares. It needs to be seen whether this sort of jump is a one-off case or a larger trend," said Pronab Sen, former chief statistician of India.
Ratings agency Icra said last week that India's power demand in FY26 may grow 5-5.5%. Although this is higher than 4.2% in FY25, it would be slower than the 7-9% growth seen in the period FY22 to FY24, the period following the pandemic. The International Monetary Fund expects India's GDP growth in FY26 at 6.2%, down from 6.5% in FY25.
Exchange view
Amid a sudden fall in demand after rains and thunderstorms in May, power prices on the real time market (RTM) on the Indian Energy Exchange fell to zero on 25 May from an average of around ₹3 per unit. This was largely driven by fall in demand in the household sector. Currently, power exchanges comprise less than 10% of the overall power market.
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'In May, higher supply liquidity along with a 4% drop in electricity consumption kept RTM prices low. On 25 May, the average daily RTM price fell to as low as ₹1.53/unit. Participants leveraged these lower RTM prices to replace costlier power by procuring through exchanges, thereby optimizing overall power costs and driving up market volumes in the RTM segment," said Rohit Bajaj, joint managing director, Indian Energy Exchange.
Rajib Mishra, professor at Management Development Institute (MDI) and former chairman and managing director of power trading company PTC India sees this as worrying, pointing out that for every 1% growth in GDP, power consumption needs to grow at 1.5%. 'If GDP is 6%, power consumption growth used to be 9%; but now it's been around 1:1 for the past few years," said Mishra, adding power demand growth has been averaging around 5-6% annually. To be sure, India's GDP growth in FY25 was 6.5%, and in FY24, 8.2%.
The Central Electricity Authority (CEA) has projected a peak demand of 270 gigawatt (GW) this year, compared to a record 250 GW recorded on 30 May last year. Power sector experts said the usual peak expected in May-June may not be reached this year with monsoon rains anticipated to be higher than normal. However, the month of September may be critical, they added.
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