Research and Report by Garg, Gerasimchuk, et al for ODI.
This report maps out the context, magnitude, trends and impacts of India’s energy subsidies.
India is the world’s third largest economy with a rapidly expanding population, which has caused substantial increases in energy demand. India’s government is seeking to expand electricity access to the 240 million people without grid electricity, in order to improve the quality of electricity supply and to boost per capita energy consumption. The role of energy subsidies is key to India’s energy development trajectory. It determines how India’s energy demand is met and creates critical choices for government policy-makers.
This report presents a comprehensive inventory of India’s energy subsidies to coal, oil and gas, electricity transmission and distribution, and renewable energy. It finds that the total value of energy subsidies decreased between 2014 and 2016, with the large majority of subsidies going to fossil fuels or the electricity distribution system. The research also shows that subsidies for renewable energy have more than tripled in the same period.
The aim of the study is to enhance transparency and dialogue on energy choices in India and assist in tracking shifts in government support from fossil fuels to renewables, in line with the country’s policy goals of increasing energy access and promoting low-carbon energy.
Findings: Trends in Energy Subsidies in India
The total value of energy subsidies from the central government, quantified in this inventory, has declined substantially between FY2014 and FY2016, from INR 216,408 crore (USD 35.8 billion) in FY2014 to INR 133,841 crore (USD 20.4 billion) in FY2016 (in current prices). In addition, the inventory identified a range of subsidies that could not be quantified due to lack of data. However, even this incomplete quantification of subsidies is representative of the overall trends.
In FY2014 oil and gas subsidies, mainly in the consumption sphere, were by far the largest of all energy subsidies in India, at INR 157,678 crore (USD 26 billion). In FY2016, oil and gas subsidies amounted to INR 44,654 crore (USD 6.8 billion), implying a reduction by almost three quarters, partially due to India’s reforms and partially due to the decrease in the world price for oil. Subsidies to electricity T&D increased from INR 40,331 crore (USD 6.7 billion) in FY2014 to INR 64,896 crore (USD 9.9 billion) in FY2016, and this grouping became the main recipient of energy subsidies in India. The total subsidies to coal have remained relatively stable over the reviewed years and amounted to INR 14,979 crore (USD 2.3 billion) in FY2016. Subsidies to renewables have significantly increased from INR 2,607 crore (USD 431 million) in FY2014 to INR 9,310 crore (USD 1.4 billion) in FY2016. Overall, the scale of support to fossil fuels (coal, oil and gas) has remained more significant than subsidies to renewables through the entire review period.