India's poor economic performance in 2012 has been well documented, but the picture looks even worse when looking at power generation, which grew a slow 4.3% in 2012. This is not good enough given the basic requirement of access to electricity to help alleviate poverty.
The Indian power sector could best be described as a basket case, although tentative steps have been taken to mitigate some of the alarming risks associated with loss-making state owned distribution companies that require huge subsidies.
For commodity analysts, this poor headline performance masks a big shift in the generation mix. Coal burn was actually quite healthy in 2012, rising 12.6% (non-lignite coal). This was partly due to the poor performance from hydro generation, which slipped 12.4% in the year.
Perhaps bouncing hydro generation is a risk to Indian demand in 2013, much like it was to China in 2012. But how big an impact this will have will largely depend on the improvement in the top down picture, which is improving slowly.
India's call on imported coal was also boosted by very strong generation growth from independent power producers (IPPs), which was up a huge 35%. A large chunk of demand for coal from these plants come from the seaborne market, with units built in coastal regions specifically to avoid the unreliable supply from Coal India.
Some of this was due to one large plant starting units, although the economics of this plant are terrible, with the owner Tata making big losses thanks to mismanaging coal prices relative to power tariffs. Nonetheless, this goes a long way in explaining why coal imports were strong (up 20%YoY) despite crappy power generation.
