World Energy Outlook 2007

Energy Policy Challenges
While acknowledging the steps taken towards a coherent energy policy
(see above), this section recapitulates the main challenges which face India in
the energy sector, in order to highlight the key areas for action. To meet India's
large energy infrastructure investment needs will require the mobilisation of
public and private funds. To attract private investment, a transparent and
predictable investment framework must be established. Reducing the number
of people who do not have access to electricity and the even greater number
that use inefficient, polluting fuels for cooking and heating is a huge and
pressing challenge. The country's growing appetite for personal transport,
which carries the double threats of environmental degradation and energy
insecurity, calls for policies aimed at improving efficiency and promoting both
alternative fuels and alternative methods of transport. Supply-side and
demand-side approaches must go hand in hand. Successful pilot projects need
to be scaled up to meet the challenges ahead. Many of the necessary policies
have already been proposed or are actively under consideration (see Table 15.3
and Chapter 18). Successful implementation will depend on effective coordination
of implementing action between the ministries and different
departments at the national level and between the central government, the
states and union territories, and the municipalities. The Prime Minister has
addressed this need through the creation of the Energy Coordination
Committee. The Committee is responsible for adopting a systematic and coordinated
approach to policy formulation and decision-making across the
whole energy field. Some areas of energy policy also require integration of
India's action into a global framework.
Price and Subsidy Reform
Energy pricing policies to date have resulted in an economically inefficient fuel
mix and distorted allocation of energy and financial resources. 11 High subsidies
crowd out funds for capital investment. They frequently fail to benefit the
target population, usually poor, rural consumers (see Chapter 20). At the
central level, the largest energy-related subsidies are for LPG and kerosene. At
the state level, the largest subsidies are in the power sector.
Average residential electricity tariffs in India, at 7 US cents per kWh, are
about half the OECD average, excluding taxes. Industry tariffs, at 9 US cents
per kWh, are slightly higher than the OECD average level. Electricity subsidies
in the agriculture sector contribute to land degeneration and encourage
wasteful use of water (see Box 16.6 in Chapter 16). Overall, gross electricity
subsidies amounted to some $9 billion in 2005/06, according to the Ministry
11. Even though end-use energy prices in India are generally lower than international prices,
measured in PPP they can be very high for many Indian consumers.
458 World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS