Fossil fuels contribute 20% of India’s inflation: Report

“This is despite the fact that the Indian government budgeted the equivalent of about 0.5% of the GDP (Gross Domestic Product) to shield households from the full impact of global fossil fuel price hikes,” it says.

It may be recalled that the G20 Energy Transitions Working Group discussions held in Bengaluru recently suggested the possibility of continued usage of fossil fuels for another 15-20 years.

“The cost of renewable energy has been falling steeply over the last decade. It is now a well-known fact that renewables are now much cheaper than fossil fuel-based electricity production. In fact, India is among the cheapest locations in the world for new renewable energy projects and these costs are only expected to fall further,” the report’s lead author Carl Heinemann said.

“An increased share of renewables to the grid is also resulting in falling wholesale prices according to the RBI. This should guide policy makers in India to increase spending on renewables to ensure it becomes the mainstay in terms of electricity generation instead of locking the country in expensive energy, which will inevitably increase inflation,” he added.

While the subsidies for renewable energy have gone up over the last one year alone, the support for fossil fuels is still four times what renewable energy projects receive in India, says the report.

Fossil fuel-based energy carriers are fully regulated through tariffs, taxes, subsidies and price caps, making it difficult to fully estimate the complete benefits of renewable energy in India, it says. India is one of the fastest growing economies in the world, responsible for over 10% of the increase in total global energy demand and is only expected to grow rapidly over the coming decades, it adds.

“If anything, the higher household energy costs and national import bills from the reopening after the pandemic and the Ukraine-Russia war suggest countries like India should look at ensuring energy security and growth by doubling investments in renewable sources of energy. The rapid deployment of renewables is particularly important to diversify India’s power mix away from coal,” the report says.

In the long term, increasing the electrification of transport and household energy consumption, coupled with an expansion of renewables, will further reduce household and business consumers’ exposure to volatile fossil fuel prices and limit the need for costly government spending.

“The strong correlation between energy and inflation in India makes a strong case for India to decarbonise its economy. There definitely is evidence to support the argument that renewable energy can moderate the impact of energy prices on CPI (Consumer Price Index) in the long run,” it says.