Introduction
For any country in the world, energy is one of the most critical sectors of the economy. Without this industry’s products, it is impossible to carry out technological processes and imagine everyday life. As a result of this circumstance, a close relationship is formed between the quality and standard of living and energy supply. In addition, there is an opinion that the way of providing energy determines the level of development of a society. Researchers state that even 100 years ago, 98% of the energy consumed was humans’ and animals’ muscular strength. The power generated by windmills, water wheels, steam, and electric machines was only a small fraction of 2% (Landsberg et al., 2016). Now, humanity is continuously looking for new sustainable ways of creating energy.
Main text
The energy complex is one of the most critical sectors of the economy, particularly those that are of great importance for India’s growth and development. For such countries, which are developing exceptionally rapidly along an industrial path, the energy sector is of vital importance. The reason for this is the continually increasing energy requirements, which require substantial investments. Any increase in energy potential is the survival, independence, and prosperity of every nation in chaotic globalization. India today uses all its possibilities to obtain additional energy sources. Great attention is also paid to renewable and alternative sources. This is because India is not yet able to meet its oil needs fully and is hugely dependent on export supplies.
In the energy sector, the Indian government plays an extremely significant role through state-owned enterprises, federal policy, and market regulation, either indirectly or directly. Understanding how India’s energy policy is conducted requires understanding more than each institution’s roles, ministry, and government. It is also essential to consider their interaction and coordination with other players in the sector. India is one of the fastest-growing economies in the world, yet some contradictions and complexities pose significant challenges. This is an extremely low starting point, overpopulation, traditional pressure, and exceptional heterogeneity. In addition, the Constitution fixes the presence of 1,652 ethnolinguistic groups belonging to different linguistic families (Pereltsvaig, 2017). Thus, there is no more diverse country in the world. There are three main goals of India’s energy policy. This ensures the population’s access to energy, energy security, and mitigates the effects of climate change. All three goals are closely related but sometimes conflict with each other and are derived from India’s reality. Maintaining a balanced approach to achieving all three goals is a challenge for India.
Today in India, some population segments are still experiencing electricity shortages – almost 25% (or 289 million) of Indians have no access to electricity. In this regard, electricity issues are at the center of energy policy. This segment of the energy complex is closely related to ensuring access to energy and energy security. Even though at the end of 2011, almost 91% of target villages and 77% of households had access to electricity (Dubash, 2018). However, it should be noted that electrification does not guarantee a reliable and round-the-clock power supply due to a nationwide shortage of energy resources.
Each state in India has its unique energy balance, mainly based on available resources, existing infrastructure, and strategic initiatives. The regional concentration of electricity generation leads to a wider gap between electricity demand and supply. The reason for this is also a certain seasonality of electricity generation. This dispersal can lead to uneven economic development in the country, so India needs a well-functioning unified energy system.
The Indian government has introduced a public-private enterprise viability financing scheme that provides grants from the central and regional governments to attract more private investment. For example, today, the so-called “Smart grids” receive significant attention from Indian politicians and private investors. In 2010, the Indian authorities organized a focus group on developing similar power grids (Borlase, 2017). According to policymakers, by installing smart grids, the level of distribution of electricity can be significantly improved.
The deficiency of coal and natural gas reserves for power generation is an urgent problem in the Indian power industry. There are two main reasons for this: slow domestic production and import restrictions. As for gas, its production is also decreasing. Gas imports are limited by infrastructure and pricing issues. The main problem with pricing is the principle of costs plus fixed income. It deprives power plants of incentives to increase production and investment.
In addition, the current rigid pricing mechanism limits the choice of strategic instruments for demand management. Inappropriate subsidies reduce the cost of electricity to the limit, thereby not achieving their primary goal. Similarly, it undermines the prospect of a return on investment. Deregulation of the export tariff on coal has led to an unexpected increase in import costs. The question is how flexible the pricing system should be to guarantee a return on investment. Overall, the pricing mechanism needs to be rationalized to reflect the changing costs of electricity production. This is also important to provide sufficient incentives to invest.
To meet the electricity demand, India needs to implement policy programs and address several key challenges effectively. In addition to increasing production capacity, India must improve the management of each segment across the sector. In particular, it is worth paying special attention to low operational efficiency and high monetary losses. Stable fuel supply and infrastructure support are required to attract investment and ensure reliable electricity supply (Chakrabarti & Arora, 2016). In addition, building a financially viable sector is essential to meet the growing demand from both the population and industry.
It is worth noting that renewable energy also plays a vital role in India’s energy structure. For instance, “renewable energy sources play a vital role in securing sustainable energy with lower emissions” (Kumar & Majid, 2020, p. 2). It is no longer an alternative energy source given its enormous potential. Renewable energy makes it possible to ensure energy security and reduce dependence on imports. In particular, solar energy, in the long term, will allow India to become energy independent. Another goal of using renewable energy is to mitigate the negative impact on the environment. There is now a trend towards an increase in the share of renewable energy. Despite the still low energy intensity of this sector, it has excellent potential.
Organizational commissions are authorized to establish the cost of energy of the following types: water, wind, solar, thermal, and biomass energy. Set prices serve as a reference point for energy projects. Renewable energy plays a different role in different regions. Typically, the regional government approves projects and organizes processes such as land acquisition and water use. Local energy agencies have their energy programs, and some regions have their energy policies.
Numerous political reforms over the past 20 years have transformed India’s energy sector. From a predominantly public sector, it has evolved into a market-based system that sets a level playing field for the public and private sectors. However, political complexities and economic traditions impede the full liberalization of India’s energy sector, with suboptimal results. In this sense, the large-scale blackout in northern India in July 2012 can be seen as a consequence of incomplete market liberalization (Dubash, 2018). Therefore, there are multiple adjustments in this area that India still needs.
The goal of ensuring access to energy for the entire population has led to the development of pro-poor policies. Still, the result has been a system of inappropriate subsidies to producers and consumers. They impede the creation of financial stability in the energy sector. In addition, the industrial policy aims to protect the local manufacturing industry through import substitution. Due to the combination of these factors, India is now trapped halfway towards an open and well-functioning energy sector.
India’s energy sector is getting increasingly less able to provide a reliable supply of energy amid growing fuel demand and imports. There has been an increase in the level of subsidies and a systematic failure to ensure adequate revenue collection along the entire value chain (Von Moltke et al., 2017). Consequently, the financial potential of the energy sector has been significantly undermined. The lack of sufficient capacity to make timely and adequate investments causes fears that India is heading towards an energy crisis. This is also a critical issue that needs attention from the government.
Increased dependence on imports poses geopolitical risks for India, risks of price fluctuations in the global market, and increased international competition. Indian energy policy cannot be set without taking into account the growing global interdependence. Energy sector participants must be commercially viable, with access to adequate financial resources. Their managerial autonomy and the independence of making administrative decisions from central ministries or state bodies are essential for timely investments. At the same time, the property must be properly separated from management. The critical issue is not the opposition of private property to public property. Instead, property rights should not interfere with market relations. Management must be free to act based on thorough market analysis and economic discussions.
Currently, the rigid pricing mechanism determined by the government needs to be reformed. Price and non-price price regulators in this sector should work independently of political influence. End-use pricing should support government demand-side policies and promote rational resource allocation. Pricing mechanisms must reflect real costs. Otherwise, India’s energy sector will continue to operate inefficiently, burdened with recurring financial and supply-side problems known to Indian policymakers.
India needs significant investment to meet the growing energy demand and ensure all citizens can access modern and clean energy sources. Investment should focus on launching cutting-edge green energy technologies for India’s sustainable energy future. Creating the right conditions, including moving away from import substitution policies, will be critical to attracting needed investment in an internationally competitive environment.
Improving energy policy implementation efficiency needs to be achieved through enhanced bureaucratic and administrative processes to ensure the timely completion of energy projects. In addition, coordination between the central government and regional governments should be enhanced. A comprehensive and coherent energy policy is critical to effectively managing India’s energy sector and securing investment. Pursuing multiple goals in one system can make it difficult to achieve the desired results.
The necessary energy supply for the population should be carried out separately from the energy policy. This requires social support and government programs that do not interfere with energy companies’ investment and management decisions. India must complete unfinished energy sector reforms based on the principles of a market economy. Effective public relations are critical to gaining public support for the necessary energy sector reforms.
The electricity sector has achieved a high degree of liberalization, allowing private investment to be attracted to every link in the production chain: creation, transmission, and distribution. According to Surdeo (2018), “the government realizes that the key to removing all the inefficiencies in the sector is by improving the distribution aspect” (p. 123). However, a significant portion of the sector remains under the influence of both central and regional governments. The energy sector faces fuel shortages, underdeveloped infrastructure, and financial instability of state-owned energy companies. The reason for this is a distorted pricing mechanism and a systematic impossibility to ensure the legal sale of income (Shukla & Sharma, 2016). Effective implementation of policies to attract private investment is essential to provide reliable and adequate access.
The coal industry remains the most inefficient and least open to private investment, even though coal is the country’s primary fuel source. The monopoly of the two state-owned companies hindering increased coal production and causing severe fuel shortages must end. Private participation in coal mining on an equal footing with government agencies should be permitted. These are the first steps to the development of this industry and solving some of the energy problems.
The oil and gas sector is highly liberalized to attract private investment and increase domestic production. However, prices for petroleum products have only partially ceased to be regulated by the state. The government, in practice, still sets retail prices for petroleum products. Inappropriate subsidies for some petroleum products do not provide the intended benefits for the poor. Instead, they shift the financial burden onto smaller companies in the sector and hold back private investment in the retail sector. This has led to a continuous decline in private and foreign investors’ interest in the oil and gas sector.
The renewable energy sector requires sizeable private investment, which is needed to materialize the potential of renewable energy to supply rural areas. Growth in local production capacity can be achieved through more open market policies and investment in R & D rather than import substitution policies. The nuclear power sector is under the exclusive control of the central government. However, it faces growing public censure over safety and environmental issues. India’s unique atomic programs, which exploit the country’s rich resources, must be carefully assessed in terms of its role in India’s long-term energy security and sustainable development.
Conclusion
To complete India’s energy sector’s transformation into an open and efficient market, the country needs strong political leadership. Frequent populist statements that, for example, promise free electricity do not help create a correct public perception of energy as a commodity. In addition, with the increasing investment demand and integration of India’s energy sector into the global energy market, it is necessary to align energy policies and institutions with international practice.
References
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Dubash, N. (2018). Mapping power: The political economy of electricity in India’s states. Oxford University Press.
Kumar. J, Majid, M. (2020) Renewable energy for sustainable development in India: current status, future prospects, challenges, employment, and investment opportunities.Energy, Sustainability Nd Society, 10, 2. Web.
Landsberh, H., et al. (2016). Energy and the social sciences: An examination of research needs. Routledge.
Von Moltke, A., et al. (2017). Energy subsidies: Lessons learned in assessing their impact and designing policy reforms. Routledge.
Pereltsvaig, A. (2017). Languages of the world: An introduction. Cambridge University Press.
Shukla, A., & Sharma, A. (2016). Energy security and sustainability. CRC Press.
Surdeo, V. (2018). Power sector policies in India: History and evolution. Jindal Journal of public Policy, 3(1), 115-129.