Energy security and growth - An article in Business Line by Mr. Sarthak Behuria, Chairman
New Delhi   28-Aug-2008
<b>We have to pay a fair price for the energy we consume and it is high time a countrywide debate on energy security is initiated. We have to be thoughtful about our energy use patterns and Governments cannot borrow from future generations to pay for today's inefficiencies, says Sarthak Behuria (The author is Chairman, IndianOil; the views expressed are his own.)</b> India’s growth in the last few decades has been swift. Till the economy was opened up, allowing in the free winds of change, economic growth was a meagre 3.5 per cent. Climbing to 6 per cent in the post-liberalisation period, the economy accelerated to over 8 per cent in the last few years. Today, India is emerging from the shadows of the past and looking the future in the eye. Certainly, this is not accidental but the product of vibrant economic reforms. And it clearly reflects the coming of age of India. The question is: can we continue to grow at this rate? Further, can we push it to double-digits in the future? More than a country’s GDP, its measure of purchasing power parity (PPP) denotes the average living standards of the citizens. In these terms, though we are the tenth largest economy in the world, we are way ahead in terms of GDP by purchasing power, where we stand fourth. With a per head GDP in the range of $3,700 currently, we have surely come a long way from where we were a few decades ago but still have miles to go before we match the world’s most developed nations in terms of human development. As with most other economies, the entire matrix of energy security for India is related to the fundamentals of human well-being. Energy security is about people, about expanding their choices to lead lives they value. Other things - global trade and investment, technological advancement and economic growth that needs energy, are all essential. But they are means, not ends, to the creation of an environment for people to lead productive and creative lives. Ensuring supply of reliable, clean and affordable energy for a life of dignity and quality is imperative. <b>Overall growth </b> As a nation, we have to attain higher rates of GDP and, more importantly, the prosperity should cascade down to the last level, to the proverbial ‘bottom of the pyramid’. To sustain and raise the growth rate of our burgeoning trillion-dollar economy, we need many things to click together. For instance, good infrastructure - ports, airports, roads; cheap labour, equipped with adequate skills, enough storage and irrigation facilities for agriculture, high volumes of FDI and savings, high level of labour discipline and productivity and, above all, a secure supply of clean, affordable energy to power all sectors of economy. The structural transformation that has been adopted by the government in recent times has reduced growth constraints and contributed greatly to the country’s overall growth and prosperity. Several studies predict rapid economic growth, at a double-digit rate in the decades to come, in India, consequent to which the economy stands a good chance of overtaking the likes of the US. But can one take these projections and optimism for granted? Even ignoring, for the moment, the entire gamut of issues that point in this direction and just focussing on energy, it is apparent that ensuring a secure, supply of clean and affordable energy will be a binding constraint on India’s growth. <b>Investments in energy </b> Today, India consumes over 112 million tonnes of petroleum products annually. The rate at which consumption is growing every year requires creation of one new refinery the size of the Mathura refinery every two years, and a matching distribution infrastructure to reach these products to the consumers! Call it providence, if you will, but India has moved onto the path of higher growth at a time when energy-related issues have become more complex than ever before. Energy, today, is scarcer, costlier and much more strategic. Not only are energy markets worldwide constrained by a low and depleting resource base, they are also limited by huge investments. Driven by geopolitical uncertainties and supply volatilities, escalating crude oil prices, which have wreaked havoc on economies worldwide, are the signal of the tougher times ahead. It is becoming increasingly difficult to get oil. In addition, there is a shortage of equipment and skilled personnel in the energy sector. To top it all are the overriding climate change concerns, pointed out by voices that are getting shriller by the day. As India moves ahead to become the world’s most populous nation in the year 2040 and a multi-trillion economy much sooner, it is estimated that its energy infrastructure needs a colossal investment of $1.25 trillion over the 25-year period till 2030 to sustain its economic growth. The big question is: Where will the money come from? In a highly subsidised energy market such as India, resource generation for these investments by energy suppliers seems a difficult proposition, especially in the face of regressive pricing policies. Take, for instance, the oil and gas sector. India’s over 70 per cent dependence on imported crude oil exposes it to the volatilities and uncertainties that shroud the global oil markets today. It is estimated that India needs to invest over Rs 50,000 crore annually in its oil and gas sector alone to meet the current and projected demand levels. Most of the oil and gas infrastructure is in the public sector, which is reeling under the burden of under-recoveries to the tune of over Rs 2,00,000 crore on sales of petrol, diesel, domestic LPG and kerosene. In the face of such a severe resource crunch, India’s oil and gas sector possibly cannot generate the required resources for such huge investments. Although investments have been forthcoming from the private sector, if the current price regime continues, such investments would only be for the export markets. <b>Finding solutions </b> Unfortunately, the issue is still not being treated with the urgency it warrants. It is high time energy security is viewed in the national interest and a countrywide debate is initiated, with all the stakeholders - government, business, academia, NGOs, etc. - getting actively involved in the process of attaining it. The current system of subsidies is an ad hoc solution, which deposits the responsibility of finding a solution squarely at the doorstep of the next generation. As a nation on the ascent, it is indeed important to understand that wasteful consumption is anathema to growth. Optimum utilisation of energy and importance of conservation will need to be understood and practised by all. It is time now to pay a fair price for the energy we consume. Governments cannot borrow from future generations to pay for today’s inefficiencies. The luxury of being frivolous with energy will not be available to India for long. We will have to learn to be thoughtful about our energy use patterns through self-discipline or face irreversible consequences. To start with, the principle of the right price for the right product and targeting the right people can go a long way in bringing down the high energy intensity across sectors - household, commercial, industrial, agriculture and transportation - in our country. Perhaps, it could soon be an era of renewable sources of energy. Subsidies should be moved away from the traditional fuels to the renewables. This will facilitate investments for the commercialisation of the non-traditional renewable fuels. In addition, removal of subsidies on traditional fuels by factoring in the true price signals will spur technological innovation. We need to save for growth, we need to conserve for growth, and only such growth will actually be sustainable, and indeed scalable to double digits. It is essential that we recognise this today.