Background

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Energy is a strategic input for any economy, particularly so for India. A large percentage of India’s population resides in rural areas and is dependent on agriculture. These citizens use bio-mass for their energy needs for cooking and keeping themselves warm in winter. As commercial sources of energy replace the latter, even though India is making energy efficiency gains, the rising demand of commercial energy by way of substitution, keeps India’s demand for primary commercial energy quite high. For a growing economy, the reverse also becomes true, wherein, large doses of energy are a must to maintain a high GDP growth rate. In the light of the above, Indian planners have been striving hard to increase energy supply. The demand for energy is significant across all sources of primary energy like coal, oil and gas, as well as electricity. While the primary fuels are needed across the board, including a large chunk in domestic households, it is expected that even after all the villages of India get electrified in the near future, the quality of supply will continue to be extremely poor. India has a large number of small hamlets and it is long way off before all habitations get electrified. The 12th FYP document mentions that the per capita availability of electricity in the rural areas is around 100 kWh per annum.

India is not well endowed with energy resources in comparison with its large population. While it supports 17% of the world’s population, it only has 0.6%, 0.4% and 7% of the world’s oil, gas and coal reserves, respectively. This has led to large import dependence to meet its demand for energy, which has been sticky at nearly 35% of its annual primary commercial energy demand over the last several decades. This has led to intensive efforts to exploit India’s coal reserves and explore oil and gas. However, due to a number of structural issues, both exploitation and exploration of energy minerals have been poor so far. India’s renewable energy potential is vast and holds a great promise. It is evident that an integrated approach towards developing domestic energy resources, and giving special attention to the ones in which India may have higher potentials, has been engaging the attention of India’s economic planners.

On the other hand, there is a large scope for effecting energy efficiency in the demand sectors as well. Electrification of this demand could also ease India’s import dependence, as there would be a shift from liquid fuels to coal and renewable energy. It is noteworthy that India’s import dependence for liquid fuel (petroleum) is nearly 78%. The shift to electricity could be particularly do-able if India’s renewal energy potential could be tapped, and a major demand shift could be made in the cooking and transport sectors, which are presently heavily dependent on petroleum products. Presently, only 16% of India’s energy demand is met by electricity, which could be enhanced to over 20% by interventions in demand/supply. Then, India could use its energy efficiently and raise its competitiveness and also curb energy demand. It has made good progress in the former on many fronts such as adopting efficiency in white goods, but needs to usher in the same in industry, transport, cooking and in buildings.

Beside sizable oil imports, India has also become a large coal importer. Nearly 25% of its coal demand is now being met by imports. The large import dependence, and the inability of the policy planners to reverse this trend, has impacted the growth of Indian economy. The adverse effects include depleting foreign exchange reserves to support the large energy import bill, price shocks as a result of volatility in global energy markets, and large subsidy bill in cushioning the impact of high price of energy. Other problems associated with dependence on imports include pressure on the exchange rates, and global geo-political developments threatening the energy security of India.

India’s import bill of crude has been rising steadily and was $160 billion in the year 2012-13. Even though India has large coal deposits, however, due to inability to raise domestic production at a fast rate, India is now importing more and more coal (including coking coal for industries) to meet the needs of thermal power generation. It is importing nearly 25% of its total coal needs and this proportion is expected to rise in the future. Similarly, India imported 35% of its natural gas consumption in the year 2012-13, and even this demand is expected to be met increasingly by imports. With a large share of energy being met by imports, domestic prices not only of energy, but along the entire value chain, get impacted by volatile international prices which are highly dependent on non-economic factors, including geo-political ones. As the country struggles to meet the challenges of economic development and raising income levels, it has had to cushion the impact of energy prices whenever prices have seen sudden spikes. India has a long history of subsidizing certain energy sources as well as downstream products like fertilizer, etc., but unexpected prices take heavy toll on the fiscal situation of the Government. Therefore, the term ‘energy security’ has a large connotation for the country including economic stability and ensuring well-being of the people of the country. The recent drop in crude prices have come as a welcome surprise, and coupled with the pricing reforms undertaken by the Government, the oil subsidy bill has come down drastically.

All the above reasons make it vital for India’s economic planners to strategize India’s energy sector, and help in enhancing energy security of the country. This calls for a multi-pronged strategy both in the area of energy demand and supply, along with multiple facets of energy policy including pricing, regulation, distribution and an overseas strategy to obtain secure energy supplies at stable prices. Energy efficiency is a common denominator across the sectors, and the Government had in 2009 declared its intention to enhance energy intensity by 20 - 25% over 2005 by 2020. Similarly, development of renewable and nuclear energy sectors, are also important elements of India’s energy strategy. However, energy efficiency and renewable energy require large upfront funding with a robust policy support to ensure adequate returns over long periods of time. Technology is also a vital input, particularly in the area of energy efficiency. Therefore, India’s energy strategy would necessarily comprise action on both demand and supply sides with due consideration to policy, finance and technology.

The Planning Commission, which was the apex planning agency of the Government of India, had strived to bring the related energy demand and supply ministries together to help strategize the country’s energy plan. It had coordinated the India Hydrocarbon Vision 2025 Document in 1997 which looked at measures to enhance oil and gas availability in the country. Similarly, the Integrated Energy Policy Report, which was adopted by the Government in 2008, was the first step to comprehensively address the entire subject of energy, and propose an integrated policy.

The India Energy Security Scenarios, 2047 that was launched on Feb 28, 2014 was a step in the same direction. NITI Aayog, which is the successor to the Planning Commission, has now further improved the Tool and expanded its ambit to include new features in the instant Version 2.0 .

As the subject of energy in India is divided across five line ministries and so is transport and manufacturing, NITI Aayog is alone in a situation to take a holistic view of energy. This exercise is intended, both to place the aggregate picture as well as the share of the individual in the larger whole, for the economic planners to help India achieve energy security and efficiency in as short a time as possible.