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India finds itself at a crossroads as it wrestles with the complexities of meeting its escalating energy demands while striving to transition towards cleaner, renewable sources. Recent research indicates that the nation’s energy subsidies have surged to a nine-year high, reaching INR 3.2 lakh crore (USD 39.3 billion) for the fiscal year ending in 2023.
Despite positioning itself as a global climate leader in recent years, India’s reliance on fossil fuels remains significant, with coal, oil, and gas subsidies contributing approximately 40% of total energy subsidies in FY 2023.This stands in stark contrast to clean energy subsidies, which accounted for less than 10% of the total.
The surge in fossil fuel subsidies can be attributed in part to the 2022 global energy crisis, exacerbated by Russia’s invasion of Ukraine, prompting India to implement measures to stabilize domestic energy prices. These measures included capping retail prices of petrol, diesel, and liquefied petroleum gas, as well as providing tax cuts and direct transfers to businesses and consumers.
According to a report by the International Institute for Sustainable Development (IISD), oil and gas subsidies alone rose by 63% in FY 2023 compared to the previous fiscal year. Similarly, coal subsidies increased by 17% over the same period, reflecting India’s continued dependence on fossil fuels despite its ambitions for clean energy transition.
With rapid economic growth propelling India towards a USD 5 trillion economy by 2027, the government is investing heavily in all forms of energy supply. However, experts caution that this approach could hinder progress towards India’s clean energy goals for 2030 and perpetuate dependence on volatile and geopolitically risky fossil fuels.
Swasti Raizada, Policy Advisor at IISD, emphasized the need for targeted subsidies and a return to market-based pricing to avoid mounting budgetary impacts. Raizada stressed that untargeted fossil fuel subsidies are inefficient and detract from the fiscal resources available for supporting clean energy technologies.
In light of these challenges, the report recommends that the government consider reallocating a portion of fossil fuel tax revenues to support a just transition towards cleaner energy sources. Deepak Sharma, Policy Analyst at IISD, underscored the importance of ensuring that state-owned enterprises align with India’s net-zero commitments to facilitate a sustainable and inclusive energy transition.
India clearly grapples with the dual imperatives of meeting rising energy demands and reducing carbon emissions. The path forward hinges on decisive policy actions that prioritize clean energy investments while mitigating the adverse impacts of fossil fuel subsidies.
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