India faces energy-economic growth paradox for achieving $10 trillion economy goal

The country has a choice between energy efficient sustainable economy and energy intensive economic growth

By Jay C Shiv
Published: Wednesday 22 November 2023
Photo: iStock

The aspiration for economic growth calls for a sustainable supply of energy to drive the ambition. India’s ambition to achieve a $10 trillion economy by 2030 and be the third largest globally, leaving behind Germany and Japan, seems feasible. However, it requires a careful examination of the availability of energy resources to sustainably drive the march.

The energy intensity of India’s economy is far too high in comparison to other economies that it must surpass in order to become the world’s third largest, both in terms of total final energy and electricity consumption. It is, therefore, important to understand the efficiency of energy use by various consumer segments, specifically the sectors contributing to the country’s GDP. One might argue in terms of disparity in per capita energy availability in India in comparison with other countries; however, it is not indicative of the energy intensity of its economy.

In comparison, the energy intensity of India’s economy (based on data for 2020-21) is about three times that of Germany’s economy, which has a gross domestic product (GDP) 1.5 times higher than India. While Germany consumed about 65 kilogrammes of oil equivalent (KOE) of final energy per $1,000 of its GDP, India consumed 188 KOE per $1,000 of its GDP in 2020-21. 

Similarly, India’s electricity consumption in 2021 was about 1,230 billion units, with an intensity of about 450 units of electricity per $1,000 of its GDP. At the same time, Germany consumed only about 520 billion units, with an intensity of 120 units per $1,000 of its GDP. 

The energy intensity of Japan also exhibits similar characteristics. For an economy twice as big as India’s, in 2021, it consumed only about 80 KOE of final energy, with an intensity of about 155 units of electricity per $1,000 of its GDP. Energy intensity analysis of the United States too indicates a parity with Germany and Japan. However, the case for China is very comparable to that of India.

A look at sectoral consumption suggests that industries account for about 50 per cent of India’s total final energy consumption and about 41 per cent of total electricity intake. The industry sector’s contribution to the GDP for India and Germany is the same at 26 per cent, with the same share of electricity consumption of 41 per cent, indicating similar characteristics for industrial activities and demand for electricity. 

The comparison of the electricity intensity of the industry sector’s contribution to India’s GDP and Germany, on the other hand, paints a very different picture. For 1.5 times the industrial contribution in Germany, its electricity intensity is one-fourth of India’s. This signifies that the electricity intensity of India’s industry contribution to its GDP is the highest among the top five economies, with more than 700 units per $1,000 of its contribution, comparable with China at about 630 units, but far more than the rest which are below 250 units.

Against this backdrop, it is imperative to envision a roadmap that focuses on the judicious use of energy resources. India’s electricity system is well placed to achieve the $10 trillion mark without the need for much capacity addition. At the current level of electricity intensity in India’s GDP, the country would need electricity supply to the tune of 4,000-4,500 billion units annually, about 2-2.5 times the current generation, eventually requiring significant capacity addition for electricity generation. 

However, if the electricity intensity can be improved by 45 per cent, reducing the consumption to 250 units per $1,000 by way of energy and resource efficiency — although still way below the levels of Germany and Japan — current generation capacity with annual generation of 1,600 billion units can drive the economy to $6 trillion mark. Furthermore, in order to support a $10 trillion economy, an additional 900 billion units of electricity supply will be required annually, which can be met with an additional 200 gigawatt coal equivalent capacity.

It is only a matter of extrapolation to understand the energy and electricity requirements for the country in order to reach the economic sizes of the US and China — both with and without aggressive energy and resource efficiency measures. Comparatively, the US and Chinese economies are approximately eight and six times bigger than that of India, respectively.

Energy efficiency can play a key role in transforming India’s overall energy demand and supply. The country needs to aggressively push for energy efficiency-led decarbonization of its economic activities, as “it is often the least expensive way to meet new energy demand”. 

A report by non-profit American Council for an Energy-Efficient Economy, 2022 International Efficiency Scorecard, examined the energy efficiency and performance of the top 25 energy-consuming countries, which clearly highlights the areas of concern for India. In the overall context, India ranks 16 with an overall score of 41.5 out of 100 across four key areas: National efforts (rank 16), buildings (rank 21), industry (rank 13) and transportation (rank 12). 

Among the top five economies, Germany and Japan lead the chart with an overall rank of 3 and 7, respectively, followed by China (rank 9) and the US (rank 10) and lastly India (rank 16), reflecting similar trends for the national efforts component as well. In the transportation sector, India, however, is a little better, ranking 12th, lagging behind China (6), Germany (7) and Japan (9), but slightly better than US (15). 

Energy efficiency in buildings is an area of great concern, where India ranked 21 out of 25, only slightly better than Egypt, Thailand and Russia but much far behind Germany (4), China (5) and US (8), following Japan (16). 

Regarding the performance of industrial sector, the report noted India is third among top five economies, ranking 13, following Japan (one) and Germany (three) and followed by US (15) and China (17). Some of the key action areas highlighted in the scorecard (with no score whatsoever given / assigned to) are the lack of spending on energy efficiency and research and development (R&D) at the level of ‘national efforts’. 

Similarly, industry needs to pay urgent attention and mobilise spending towards reducing energy intensity through investment in manufacturing R&D. Nonetheless, the industrial sector does not have to start from scratch as it has a robust operational and performance monitoring system, as recognised by the scorecard as well,  in the form of mandates for plant level energy managers, mandatory energy audits for manufacturing facilities and voluntary energy performance agreements with manufacturers.

There have been some significant efforts towards improving energy and resource efficiency in the country. One of the flagship programmes focusing on reducing energy intensity of industrial activities is the Perform, Achieve and Trade (PAT) programme under the National Mission for Enhanced Energy Efficiency. It garnered significant traction and outcomes with proactive participation from various energy intensive industries  such as aluminium, cement, chloralkali, fertiliser, iron and steel, paper and pulp, thermal power plants, textiles, refineries, railways, power distribution companies, petrochemicals and commercial buildings (hotels). 

The PAT programme is constituted to run for seven cycles of three years each. The energy savings results assessed and reported for the first three cycles cumulates to about 24.5 million tonnes of oil equivalent (MTOE) of final energy savings from April 2012-March 2020 against total energy consumption of 6,466 MTOE (excluding 2015-16). 

While the energy savings targets envisaged for each cycle have been overachieved, the overall savings only constitute less than a per cent of total final energy consumption in the country for respective periods. Notably, as pointed out earlier, nearly half of the final energy is consumed by the various industrial activities, implying only about 1.5-2 per cent energy savings with respect to the final energy consumption from industries. These energy savings need to improve beyond this in order to improve energy intensity of industrial activities and overall, addressing the inherent issues highlighted above. 

After all, we have to make a rational choice whether to drive the economic growth in a sustainable, resource and energy efficient manner or become an unsustainable energy intensive economy.

The sectoral data has been calculated based on countries' energy consumption, overall energy and electricity share and the sector's contribution or share in the total GDP of each countries analysed. Data from India Energy Statistics and data platforms Statistica, Enerdata and International Energy Agency, etc.

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