South Asia Monitor: Energy in India: An Overview - October 1, 1999
October 1, 1999
India's opportunity for higher GDP growth could be thwarted by chronic energy shortages, in the absence of far-reaching structural reforms in the fuel and power sectors. India's crude oil and natural gas production has been stagnating in recent years. Demand, however, has been growing by more than 6 percent annually, resulting in rapid growth in oil imports. Oil imports presently account for 60 percent of total oil consumption and are expected to increase to 70 percent within five years, if current demand and production trends continue. The cost of oil imports is expected to rise from U.S.$6 billion in 1998-1999 to U.S.$8 billion in 1999-2000, due to increases in global petroleum prices. At the same time, bottlenecks in power supply are crippling growth and the financial condition of the power sector is draining scarce budgetary resources.
India's yawning energy needs and the looming import gap have in recent years led to a reassessment of its energy strategy. Policies in the energy sector are now aimed at exploiting domestic oil and gas resources more efficiently, attracting foreign investment to finance the required infrastructure, and shifting from imported oil toward the more competitive natural gas. Still, greater deregulation and restructuring of the sector, coupled with a more serious policy on regional cooperation in energy, is what is required to ensure competitive and reliable energy to a growing economy, reduce pressure on the balance of payments, and reduce budgetary transfers to the sector. The need for structural reforms is all the more compelling as oil prices rise and industrial recovery gets under way.