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Rethinking India's Energy Policy


Energy policy is the manner in which a given country has decided to address issues of energy development including energy production, distribution, and consumption. The attributes of energy policy may include legislation, international treaties, incentives to investment, guidelines for energy conservation, taxation, and other public policy techniques. Energy is a core component of modern economies.

A functioning economy requires not only labor and capital but also energy, for manufacturing processes, transportation, communication, agriculture, and more. Energy sources are measured in different physical units: liquid fuels in barrels or gallons, natural gas in cubic feet, coal in short tons, and electricity in kilowatts and kilowatt-hours.


India is a rapidly growing economy that needs the energy to meet its growth objectives in a sustainable manner. The Indian economy faces significant challenges in terms of meeting its energy needs in the coming decade. The increasing energy requirements coupled with a slower than expected increase in domestic fuel production have meant that the extent of imports in the energy mix is growing rapidly. India is among the top five Green-house-gas (GHG) emitters globally.

India has a population of over 1.21 billion (2011 census) with 70% of the total population living in rural areas. Out of these 1210 million people, 396 million (44.7% of the total rural population compared to 7.3% of urban population) does not have access to electricity and 592 million (rural- 62.5%; urban- 20.1%) people still use firewood for cooking.

The majority of these people reside in rural areas and are still dependent on non-commercial energy sources, such as fuelwood, crop residue, and animal waste for their energy needs. Furthermore, about 80% of the population - which includes 28% of urban inhabitants - still relies on the combustion of biomass fuels for cooking activities. The use of biomass for cooking also contributes to the indoor air pollution phenomenon, which caused 488.200 deaths in 2004.

  • India was the third-largest consumer of crude oil and petroleum products after the United States and China in 2019. The gap between India’s oil demand and supply is widening. Demand for crude oil in 2019 reached 4.9 million b/d, compared to less than 1 million b/d of total domestic liquids production. The economic slowdown and heavy monsoon season eased the pace of India’s oil demand growth, which grew 2% in 2019 compared to the 2018 level.

  • As of August 2020, EIA expects the ongoing COVID-19 pandemic to drastically lower India’s growth in petroleum products—primarily jet fuel, gasoline, and diesel—with the most acute demand destruction occurring during the second quarter of 2020. India’s refiners began curtailing oil product output in March 2020.

  • Once the country’s economy recovers from the pandemic, India’s transportation and industrial sectors are likely to expand under economic development; a rising population; and government policy initiatives that increase highway and airport infrastructure, promote Indian manufacturing, and increase liquefied petroleum gas (LPG) use in the residential sector.

  • Diesel remains the most-consumed oil product in India, accounting for 39% of petroleum product consumption in 2019, and is used primarily for commercial transportation and, to a lesser degree, in the industrial and agricultural sectors. Gasoline consumption, which accounts for 14% of India’s total oil consumption and has increased at an accelerated rate over the past few years, has been replacing diesel in the swiftly-growing passenger vehicle sector since 2014.

  • India has supported LPG consumption through targeted subsidies for the lowest income population since 2016, which is likely to sustain LPG growth through 2020. However, LPG consumption growth began slowing through the first half of 2019, and the LPG penetration rate of households reached nearly 97% at the beginning of 2020 compared to 56% in 2016. LPG consumption growth may slow once all households have LPG access.


The energy policy of INDIA is characterized by trades between four major drivers:

  • A rapidly growing economy, with a need for a dependable and reliable supply of electricity, gas, and petroleum products;

  • Increasing household incomes, with a need for an affordable and adequate supply of electricity, and clean cooking fuels;

  • Limited domestic reserves of fossil fuels, and the need to import a vast fraction of the gas, crude oil, and petroleum product requirements, and recently the need to import coal as well; and

  • Indoor, urban, and regional environmental impacts, necessitating the need for the adoption of cleaner fuels and cleaner technologies.

In recent years, these challenges have led to a major set of continuing reforms, restructuring, and a focus on energy conservation.

India's policy-makers have three big energy goals: providing everyone with access to energy, securing energy supply, and trying to limit carbon emissions without encumbering the nation's growth. These important concerns miss the point.

Energy access cannot be assured by progress towards a simple target such as supplying power 24 hours a day, 7 days a week, nationwide. India has deep divides in the quantity and quality of energy consumed across income groups and between rural and urban households. Fuel subsidies are poorly designed and the strategies to reduce them to enhance energy security are heavy-handed.

And because of limited action by the world's largest emitters, there is little left in the global carbon budget before planetary safety limits are breached. Clean energy and alternative growth are imperative.

India's energy priorities should be reframed as follows: to cater to the different energy demands of citizens of various economic strata; to direct energy subsidies to benefit the poor; and to promote the low-carbon industry.

Disparate demand

Urban India aspires to have a reliable 24/7 electricity supply — voltages currently drop at peak demand times such as during evenings. Meanwhile, more than one-third of India's households, mostly poor and rural, are not connected to the electricity grid. For those that are, blackouts last 4–16 hours a day.

The poorest households consume one-quarter of the energy of those at the highest income levels. Urban centers are in effect subsidized by rural areas, which are being overcharged for substandard service. The poorest households pay 30% more per unit of useful energy than the richest.

One solution to these disparate demands is to deliver more electricity through the grid while adopting cleaner energy sources. The Indian government has announced ambitious plans for renewable energy: up to 175 gigawatts (GW) of installed capacity by 2022. There are many challenges to achieving this target, from the availability of resource data on which to base decisions and managing risks to the high cost and the huge variability across the grid in terms of energy sources and infrastructure.

More than one million households in India rely on solar off-grid systems for lighting. A further 20 GW of energy capacity could be achieved if 15% of irrigation pumps were converted to solar energy. Renewable-energy applications can provide heating, cooling, cooking, and mechanical power as well as electricity.

More than 250 companies across India, with long supply chains and networks of village-level entrepreneurs, operate in the decentralized clean-energy sector already. They demonstrate that putting power in the hands of poor people can begin a transformation in how energy access is understood and delivered. At the same time, such rapid growth and geographical spread could result in the variable quality of service and expensive energy for poor people. More training would help to keep up standards.

Rational subsidies

Another reason for pursuing renewable energy in India is to avoid the pitfalls of a growth strategy mostly based on fossil fuels. Already, imports account for more than 80% of India's crude oil and 25% of its coal and gas, raising worries about supply and price volatility6. Petroleum constitutes nearly 30% of all commodity imports, leaving India little fiscal room to shrink its large current account deficit.

What to make in India?

Energy and climate policies are closely tied to industrial policy. Even on a low-carbon energy pathway, total primary energy consumption in India will at least double by 2030 (compared to 2011 levels). Energy efficiency alone — in industry, residential and commercial spheres — cannot mitigate climate change.

In sectors such as metal production, non-metallic minerals, chemicals, and textiles, which contribute most to manufacturing GDP, fuel accounts for 9–23% of all input costs compared to the industrial-sector average of 5%. Energy efficiency and alternative fuels should play a key part in decarbonizing these sectors.

India's cement industry, for instance, is one of the world's most efficient, but it also accounts for 7% of the country's emissions. Here, technological advances such as refuse-derived fuels could save 600 million tonnes of coal, 550 billion units of electricity, and 3.4 gigatons of carbon dioxide emissions between now and 2050.

A shift to a different industrial mix is required: away from such energy-intensive sectors and towards metal fabrication, manufacture of computers and electronics, electrical and mechanical machinery, advanced materials, biotechnology, nanotechnology, and photonics. This would lower the energy footprint of India's industrial growth.

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