Fuel inefficient India heading towards energy crisis
After the price hike last year, many Delhi-ites reportedly switched to buses and the metro--the Delhi Metro Rail Corporation flaunted a 12 per cent increase in trips. As Jaibir Kakar, a retail fuel pump owner in Hemkunt Colony put it, "Our sales do show a difference when the prices rise. The last time prices escalated, our average sales dipped by about 10 per cent. People find ways of saving fuel, whenever the monthly budget gets hit--they use less of it or buy lower-grade cheaper fuel to save money."
It is clear that fuel price, in particular the price of transportation, costs each household. Indians are spending more on conveyance than ever before, especially the more affluent in cities, who rely heavily on personal vehicles.
According to data collected by the Central Statistical Organisation over the past 10 years, transport accounts for a greater proportion of the household budget in India.In 1993-94, households were spending roughly 56 per cent of their monthly budget on food. By 2003-04, this was down to 45 per cent. During this same period, the single largest increase in expenditure was in transport. In early 1990, the average household spent 11.3 per cent of its monthly budget on transport. By 2003-04, it had gone up to 17.1 per cent. After food, it accounted for the largest part of household budgets. The average household spent more on purchase of personal transport and a lot much more on their running costs--in other words, buying fuel to run vehicles.
This same data shows that 8.9 per cent of an average Delhi citizen's monthly expenditure is on conveyance--much higher than the all-India average of 6.52 per cent. In terms of non-food expenditure, this share would increase to 15.22 per cent, much higher than the 11.34 per cent of the non-food expenditure in the rest of the country. Lower income groups in India spend 4-8 per cent of their non-food expenditure on commuting. The urban poor in Delhi, though, shell out about 12-13 per cent. Expenditure on conveyance for the more affluent urban class of Delhi is 15-16 per cent of their non-food expenditure--this is 2-4 per cent greater than the all-India average. Other Indian cities are going the same way.
But car sales in the country do not reflect this pinch on the household budget. According to the Society of Automobile Manufacturers (siam), carmakers have never had it so good. Even as the price of fuel shot up, the sale of vehicles boomed, the society points out. Car sales crossed the one million mark in just 11 months of 2006--a growth of 19 per cent over the last year. Sports utility vehicles--fuel guzzling monsters--grew at 7.5 per cent.
During the 1990s motor vehicle ownership escalated at roughly 10 per cent each year; about 15 metropolitan cities registered over 15 per cent growth. Delhi, averaging more than 200,000 cars a year, broke its own record--more than 340,000 cars--in 2006. One in ten families in Bangalore now own a car, and almost every family owns a two-wheeler. Just two decades ago, one of every 16 families owned a car and one in four, a two-wheeler. Cheaper loans, rising income, and changing consumer preferences have toppled the global balance the growth rate for vehicles in the West has levelled off at 5 per cent each year; in Asia it is 15-30 per cent per year.
But is the Indian economy really capable of absorbing this cost? What are its implications on the country's energy costs?
India has a crisis, and very little energy
India is importing more and more of the crude oil it needs. The fact also is that more and more of the imported and expensive fuel is being used to drive vehicles-commercial and personal. India's energy security must be understood and deliberated in these terms. By 2006, the country was consuming 120 million tonnes of crude oil, but produced only 34 million tonnes domestically. The problem is that domestic production has more or less stagnated, but consumption is spiralling. Therefore, we import more. Any increase in the international price of crude hits India badly. A staggering share of public money goes into buying crude oil.
This cost has its growth compulsion. According to the the Planning Commission's 2006 Integrated Energy Policy, the cost of energy will be one of the country's biggest constraints in India maintaining a gdp growth rate of 8 per cent.
The question then is who uses how much fuel. And what can be done about it. According to data of the Union ministry of petroleum and natural gas, India's transport sector is the single biggest user of oil and oil products--roughly 30 per cent of the total consumption. Compare this with the 20 per cent of the total oil usage that goes into cooking energy--including liquid petroleum gas (lpg) and kerosene, which serve millions of poor households across the country. Power generation and industry together account for 30 per cent, which equals the transport sector's oil consumption. The remaining 20 per cent is made up of miscellaneous uses.
The much abused farm sector uses only 19 per cent of the total diesel consumed in India for their pump-sets. The transport sector consumes 62 per cent of the total diesel used. Almost all the petrol used in India is in transport.
The next bit of the puzzle is in the consumption patterns of petrol and diesel within the transport sector. It is agreed that while most of the petrol consumed is used in personal vehicles, diesel consumption is divided between railways, goods transport, public transport and--increasingly now--personal automobiles.
At the same time, it is clear that there has been a massive shift of freight traffic from the railways to roadways. Currently, the railways' share in freight traffic is a mere 26 per cent; roadways hog 74 per cent.
This trend can only get worse as new highways are being built, or refurbished, to run parallel to high-density railway routes. India, therefore, is on the route to use more fuel to drive its transportation needs, much like the rest of the world (see box More vehicles).
The 2006 Integrated Energy Policy cautions that since there is no economic substitute for the transport sector, energy efficiency of vehicles and use of mass transport must have a high priority in the country. It has estimated that a twin approach--to tighten energy efficiency of all motorised vehicles and movement of freight by railways--would substantially reduce the oil requirements in the coming years.
The Indian car
Small and economical. Not any more
If transport pinches the household budget, the country's budget can hardly remain unaffected. So what can be done. Is efficiency the answer? The answer lies in a hard assessment of our existing fleet. What is the fuel economy of our vehicles?
The World Energy Outlook 2006 estimates that the average on-road fuel efficiency for new light duty vehicles is 9.3 litres/100 km in oecd countries and in India it is only slightly worse of at 10 litres/100km. The world is not satisfied and is seriously contemplating-and implementing-policies to improve fuel economy of vehicles. The World Energy Outlook 2006 also projects that if the policies and measures that are being planned by the rich governments are fully implemented, the average on-road fuel efficiency of new light duty vehicles in oecd countries would improve to 6.2 litres/100 km.
India is relatively efficient in its fuel use because it is poor two wheelers and small cars still dominate personal transport. But, if policies and measures do not keep up with the changing market, then the country will become more fuel inefficient, not less.
As yet, the Indian market has been price-sensitive, keeping car sizes small and affordable, thus creating a substantial customer base for low-cost small cars and two-wheelers (see box Two cheers). Small cars have small engines that use less fuel. And two-wheelers are extremely fuel-efficient compared to cars If the best of small car models have a fuel economy of 18-20 km per litre, four-stroke two-wheelers already give 70-80 km per litre--four times higher.
The advantage with two wheelers is greater fuel economy, which is preferred by the Indian customer over performance indicators like power and acceleration. This is driven by the high cost of petrol. Stringent emission standards, too, have "forced" technology improvement.
So how efficient are our vehicles?
Nobody really knows. The car companies are not required by law to meet a given fuel economy standard. There is no specific certification to assess the fuel economy of different models. Consequently, the data on each vehicle model's fuel economy is not officially available. The Automotive Research Association of India (arai), the official vehicle testing agency based in Pune, collects this information incidentally when it tests vehicle models for certification. It measures carbon dioxide emissions of each model prototype. This measurement helps estimate fuel consumption.
This data--so essential for benchmarking technologies and setting standards for fuel economy--is confidential. After much prodding, arai shared some generic certification data with the Right to Clean Air Campaign of the Centre for Science and Environment, New Delhi. But it did not disclose the details of the models tested. This data, howsoever limited, does indicate overall trends in all car segments through successive stages of emissions regulations (see box A mixed bag). A careful analysis of the data shows that overall, Indian vehicles; fuel efficiency has improved over the years. As the emission standards got tightened, fuel economy improved.
But this does not reflect the real picture.
Share of bigger increasing
The share of bigger vehicles is increasing in the country. The bigger the vehicle, the higher its fuel consumption. If this trend continues, then the country will lose the advantage of fuel efficiency offered by small cars.
Currently, a large number of car models fall in the fuel economy range of 12-16 km per litre, with engine capacity ranging between 796 cubic centimetres (cc) and 1,400 cc. But this had a lot to do with the fact that the popular 800 cc model of Maruti dominated the market.
But there is an increasing trend towards mid-engine capacity. Industry analysts expect this trend to accelerate in the future. Already the combined share in sales of vehicles categorised as compact and mid-size has increased from 53 per cent in 2001-02 to 63.6 per cent in 2004-05.
In other words, small cars continue to hog the market in India. But that does not tell the entire story. Within the small car segment, the high-end segment with more powerful engines has begun to dominate. The market share of the Maruti 800 'mini' has fallen from 21 per cent in 2001-02 to 11 per cent in 2004-05. Now, 'compact' cars dominate, which have larger engines. Hyundai's Santro and Maruti's Wagon R are in the range of 1,000-1,200 cc. The Tata Indica's petrol version has a 1,396 cc engine, while the diesel variant has an engine capacity of 1,405 cc. These compact cars together comprise 47 per cent of car sales in 2004-05.
There is also a growth of the officially 'bigger'--actually mid-size, luxury and sport utility--vehicle segment.
Sales of mid-size cars have increased to 17 per cent by 2004-05, up from 12 per cent in 2001-02. The share of executive, premium and luxury cars is increasing also. The most serious problem, though, has to do with the jumping sales of the worst offenders as far as fuel-efficiency is concerned the hated sports utility vehicles (see graph Are we losing it...).
While India takes itself very seriously in the international automobile industry, all market trends of fuel economy show it is moving contrary to the global trend. Internationally, carmakers have improved the fuel economy of their vehicles in response to standards and targets set by regulators. In India, that push is clearly not there. And the portents are not too promising either.
Though direct comparisons with the global best are not possible, putting the best of the two worlds together provides the missing pieces in the puzzle of the fuel guzzle. Our 'best' vehicles are notch below the global best as far as fuel economy is concerned (see box Unfair comparison? The best in Europe and the best in India). The difference is partly due to the variation in the generational difference in vehicle models. But it also shows that technologies are available for improving fuel economy.
What makes the picture more intriguing is that the carmakers operating in the Indian market are the same that are making more efficient cars in other parts of the world. Is it that fuel economy just doesn't matter in India? We know that is not the truth. The answer without a doubt is that the companies have never been pushed to produce their best. The weakness is in the Indian regulators.