Here are two recent articles about India's lack of economic growth. The first one explains some of the forces that led to the slowdown and how the Indian Government might intervene financially. The second one is explains how shortages in coal and natural gas are affecting economic growth in India due to the unreliable electrical grid and India's increased reliance on imported energy.
Reuters: India's April industrial output growth almost stalls
"The data clearly points to industrial growth being extremely weak," said Abheek Barua, chief economist at HDFC Bank in New Delhi. "It is in clear need of monetary as well as fiscal support."
High inflation and interest rates, a lack of government initiative and the euro area debt crisis have weighed on Asia's third-biggest economy for more than a year. Annual GDP growth hit its weakest pace in nine years in the first three months of calendar 2012.
WSJ: Grinding Energy Shortage Takes Toll on India's Growth
India is facing an energy crisis that is slowing economic growth in the world's largest democracy.
At stake is India's ability to bring electricity to 400 million rural residents—a third of the population—as well as keep the lights on at corporate office towers and provide enough fuel for 1.5 million new vehicles added to the roads each month.
Shortages of coal, oil and natural gas will require India to import increasing amounts of high-cost fossil fuels, say energy experts, risking inflation and putting the country in stepped-up competition with China, Japan and South Korea.
Energy is the lifeblood of the economy and for a financial stimulus to spur new investment and job growth, there has to be a reliable, cost-effective supply of electricity and petroleum products. Economic growth in the developing world requires increasing investment in the infrastucture and availability for increasing supplies of energy related materials.
India was not blessed with abundance of natural energy resources, so in order to meet the growing demand for energy, they will need to rely on imports. The dual effects of unstable market prices and a fluctuating currency value make it difficult to plan costs associated with generating electricity or to attract outside investment into new power generation facilities. But without large investment in new energy infrastructure, the Indian economy will reach an inflection point and growth rates will continue to lose speed.
Because so much new investment is required to supply energy to all India's residents, I think it would make more sense if they played "leapfrog" and skipped over coal burning power plants and invested in renewable energy like solar or wind power instead. Renewable energy sources secure long-term supplies and stabilize costs providing a sustainable alternative to increasing carbon emissions to support economic growth. When you are building the infrastructure from the ground up, renewable energy makes a better business case then when it replaces existing fossil fuel plants. It makes little sense in 2012 to invest resources in new coal-fired power plants, considering the mining operations can not meet current demand for coal from power plants already operating.
Another key strategy for India should be to conserve electricity and fuel as much as possible at every opportunity. Root out the waste from energy consumers in all operations. A Megawatt-hr conserved is the same as a Megawatt-hr generated. Also, as long as the government continues to subsidize energy costs for consumers, conservation efforts will ride in the backseat. If the Indian consumers had to pay market prices for energy they would be more likely to focus on conservation efforts.
Neither the developing nations, nor the long established ones can rely on ever-increasing amounts of petroleum, coal and natural gas to enable permanent economic growth. Sustainable economic growth will require a decreasing reliance on fossil fuels, replaced by renewable energy sources and an ongoing commitment to eliminating waste.
And a final note on this subject. As the economic growth cools in India, I look for downward pressure on the price of gold. India purchases more gold than any other nation, mostly in the form of jewelry collections in lieu of bank accounts. When the demand for gold falls in India, it will cause the market price to slip and maybe even slide. It will be $1200 within months. Just my swag.
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