World Energy Outlook 2007

Background and Assumptions
There are wide-ranging views about the prospects for India’s economic growth. We
present here a High Growth Scenario 1 to illustrate the potential impact on energy
demand and energy-related emissions of higher economic growth than
that assumed in the Reference Scenario. For India’s economy to grow faster,
acceleration and deepening of structural, institutional and market reforms would
be needed, accompanied by more rapid infrastructure development. Perhaps the
greatest uncertainty surrounding the outlook for economic growth is whether or
not India’s government can command the necessary will and political consent
to carry through the reforms needed to sustain high growth.
The critical reforms include a continued and sustained tightening of monetary
policy by the Reserve Bank of India to keep inflation under control, a further
reduction in fiscal deficits at the federal and state levels, and further deepening of
capital markets and access to credit (Brookings Institute, 2007). Another
important component is finding employment for the large and growing number
of working-age people. This requires the creation of low-wage, low-value-added
manufacturing jobs (unlike the current trend towards high-wage, high-valueadded
jobs in the services sector) and improvements in education levels.
Institutional reforms include improving legal and tax administration and civil
service reform. Subsidies need to be better targeted and properly financed so that
commercial enterprises can generate funds for investments to meet more rapid
growth in energy demand and infrastructure. Precision in the design and the use
of subsidies is even more important in the High Growth Scenario, because oil and
gas prices are higher. Infrastructure spending as a percentage of gross domestic
product (GDP) needs to increase. India’s currently weak infrastructure,
particularly in the electricity and water sectors, is widely seen as one of the main
obstacles holding the economy back from achieving even higher rates of growth.
Investment in maintenance of the infrastructure is as important as investment in
its expansion.
A key challenge for India, in this as in other scenarios, is to make growth more
broad-based and inclusive. The rate of decline in poverty in India’s poorer states
has historically been much slower than in the richer states (Besley et al., 2006).
While it is outside the scope of this analysis to determine the effect of higher
economic growth on poverty, our analysis of access to electricity and clean cooking
fuels confirms that higher growth would alleviate energy poverty more swiftly
(see Chapter 20).
In the Reference Scenario, India’s GDP grows by 7.2% per year on average
in 2005-2015. It then slows towards the end of the projection period, averaging
5.8% per year in 2015-2030. In the High Growth Scenario, annual growth
in 2005-2015 is 1.1 percentage points higher on average than in the Reference
1. The High Growth Scenario assumes the same set of policies as in the Reference Scenario.
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World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS