New Delhi: India subsidised a whopping Rs 3.2 lakh crore energy sources, including fossil fuels and renewable energy in the fiscal year 2023, as per a report by the International Institute for Sustainable Development (IISD).
The report released on March 12 mentioned that energy subsidies reflect a nine-year high for the country, and come in the wake of the Russia-Ukraine war. However, subsidies for renewable energy made up only 10% of this amount.
Shifting support from fossil fuels to clean energy “in a socially responsible manner” – or ensuring a just transition – will be important for India to achieve its global commitments such as achieving 50% cumulative electric power installed capacity from non-fossil sources by 2030, energy independence by 2047, and net-zero emissions by 2070, the report noted.
Fossil fuel subsidies
The report titled ‘Mapping India’s Energy Policy: A Decade in Action’ shows that over the last decade, India’s fossil fuel subsidies show an interesting pattern. In what could be a good sign, it has declined by 59% since 2014 – “an accomplishment that many other large economies have struggled to achieve,” as per the report.
But finer details tell a slightly different story.
The 2022 energy crisis in the wake of the Russia-Ukraine war and the increasing demand for power in India have caused the country to encourage “all forms of energy supplies and adopt a mixed approach to fossil fuels and clean energy,” according to the report.
The latest figures from the International Energy Agency also show that coal accounts for 45% of India’s total primary energy supply in 2022, up from 43% in 2020. Altogether, fossil fuel subsidies were five times greater than clean energy subsidies.
In the fiscal year 2023 alone, oil and gas subsidies rose at least Rs 70,692 crore – a staggering 63% increase when compared to the previous year. Coal subsidies reached almost Rs 50,000 crore in FY 2023: but this is only a 17% increase when compared to FY 2022. The central government provided at least ten different subsidies to coal, but the largest in 2023 were tax expenditures (concessional custom duty on imported coal and a concessional GST rate). To meet its rising energy demands, India also relied a lot on coal imports in 2023. Non-coking coal imports rose by 20% by volume that year. As per the report, this is the highest growth in non-coking coal imports since 2015.
However, consumer price support for electricity still continues to grow, the report noted. It was the single largest subsidy mechanism in 2023, accounting for 50% of all energy subsidies.
“While fossil fuel subsidies have reduced by 59% since their peak in 2013-14, without further targeting and a return to a market-based pricing regime, they could mount again, resulting in budgetary impacts,” said co-author of the report Swasti Raizada, policy advisor at IISD.
“This is undesirable as untargeted fossil fuel subsidies are an inefficient way of supporting low-income households, and they shrink the fiscal space available for supporting clean energy technologies,” Raizada added, in a press release.
Renewable energy and EVs
In 2023, both clean energy and fossil fuel subsidies grew by around 40% with subsidies for renewable energy and electric vehicles growing slightly faster.
Incidentally, India’s renewable energy subsidies increased to Rs 14,843 crore, an 8% increase when compared to FY 2022. These subsidies, however, still remain fairly low when compared to that afforded to fossil fuels during this time. The clean energy subsidies accounted for less than 10% of total energy subsidies, while subsidies for coal, oil, and gas contributed around 40%. The majority of the remaining subsidies were for electricity consumption, particularly in agriculture.
“Ongoing high levels of public financial support for fossil fuels not only undermine emission reduction goals but also perpetuate dependence on price-volatile and geopolitically risky fossil fuels, which weakens energy security and affordability,” the report noted.
Also read: Investment of $2 Trillion Per Year Needed to Meet Global 2030 Renewable Energy Target
Further, the think tank added in the report: “Shifting support from fossil fuels to clean energy in a socially responsible manner provides a long-term solution to the Government of India’s energy objectives and is consistent with India’s commitment to achieving 50% cumulative electric power installed capacity from non-fossil sources by 2030, energy independence by 2047, and net-zero emissions by 2070.”
Another field in which India needs to improve, as per the report, is in subsidies being offered for electric vehicles (EVs). While subsidies for EVs reached an all-time high in 2023 at Rs 9,798 crore, and India emerged as one of the fastest-growing markets for EVs, the report recommends that EVs be “wider government support” for “business continuity and promoting further investments”.
When it comes to fossil fuels, the Indian government also needs to conduct a detailed cost-benefit analysis to allocate a portion of its energy revenues to meet its just transition needs, where the dependence on fossil fuels are replaced with renewable and clean energy options while also helping communities dependent on fossil fuel-based livelihood measures transition gradually.
Higher taxes on fossil fuels will also help the country, and the revenues that come from this can be used to support economically backward communities, the report mentioned.
“Previous studies show that India will require significant investment to make its energy transition just, sustainable, and inclusive,” said Deepak Sharma, policy analyst at IISD, in a press release. “India’s state-owned enterprises will be a critical part of this shift. As their majority shareholder, the government should ensure that all fresh capital going to these entities is linked to India’s net zero commitments.”
