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Positive Energy

The growth agenda must be powered by intelligent policy.

May 31, 2014 3:00:15 am
Fossil fuels alone cannot meet future energy needs. Fossil fuels alone cannot meet future energy needs.

By: Shyam Saran

Book: The Political Economy of Energy and Growth
Edited by: Najeeb Jung
Publisher: Oxford University Press
Pages: 392 pages
Price: Rs 995

Najeeb Jung, currently Lt. Governor of Delhi, has edited a very useful and instructive book on India’s energy challenge, locating it in the context of the global energy outlook. The book, with contributions from leading energy specialists and economists, has been put together in honour of Vijay Kelkar, a versatile economist, civil servant and thought leader, who has served in a series of key and influential assignments both in India and abroad. Kelkar most recently headed the 13th Finance Commission (2008-2010) and is currently heading an expert panel on energy security. He was secretary, petroleum and natural gas from 2004-2007, when he initiated the New Exploration Licensing Policy or NELP. Thus, he has had a long association with the energy sector and has been influential in both policy formulation and execution.

The book is divided into four sections, the ‘Economics of Energy and Economic Growth’, ‘International Oil in the National and Global Context’, ‘India’s Energy Security’ and ‘Natural Gas in India’s Energy Basket and Policy Debates’. Taken together, these sections provide a comprehensive picture of the challenges that India faces in its quest for energy security. Policy lapses and successes of the past are also examined and some lessons drawn for the future. However, one misses a more detailed consideration of the renewable energy sector and the role it must play in India’s future energy plans. The nuclear energy sector is also cursorily dealt with. Ligia Noronha is to be complimented for at least bringing these two sectors on the radar in her essay on ‘Challenges to India’s Energy Security’.

In an excellent introductory chapter, Najeeb Jung provides a most instructive analysis of global energy trends and places India’s energy challenge in this broader context. It is evident that the world is at the threshold of a global energy crisis, where demand will continually outstrip supply, if fossil fuels remain the chief source of energy. This is despite the growing availability of natural gas, both from conventional as well as from shale formations. This has major implications for India’s growth prospects. For, as Najeeb Jung points out: “Energy is the lifeblood of modern societies to drive growth, stimulate economic activity, and higher standards of living to millions of people across the globe”.

It is impossible in a short review to cover all the notable contributions made in this edited volume, but I would like to pick out a few for their analytical quality and depth. Daniel Yergin, an internationally acclaimed energy economist, has written a two-part essay in honour of Kelkar. The first part provides a cogent and persuasive argument for the further globalisation and liberalisation of the Indian economy in order to bring it into the “growth turnpike” that Kelkar has often referred to. Yergin recounts some of the policy contributions made by Kelkar in removing the road blocks to creating a market-based Indian economy with a competitive environment supported by an effective policy and regulatory regime.
Yergin, however, spells out the risks that are entailed in exposing the economy to global forces over which there is no control, especially if the regulatory regime is weak and greed overtakes responsibility towards the aam aadmi or general populace. He blames the global financial and economic crisis on these factors. In the second part, Yergin focuses on the energy sector and blames the administered pricing system for the stunted growth of the sector in India. He compliments Kelkar for his advocacy of a market-based energy sector, with policies which encourage investment and innovation.
In his chapter on ‘International Oil: Need for a Cooperative Regime’, Sanjiv Misra convincingly argues that with the emergence of more competitive conditions in the international oil market, in particular, thanks to the decline of OPEC and diversification of sources of supply, there is increasing volatility in the global oil market. The market is vulnerable to supply shocks due to political disruptions or even natural disasters and it is only collaborative arrangements among suppliers and consumer countries that could ensure a more secure energy future.

This is, in fact, what Mani Shankar Aiyar, another distinguished contributor to this volume, had tried during his tenure as minister for petroleum and natural gas in 2004-6. Unfortunately, as he points out in his essay, this initiative was not followed up on after he left the ministry.

Anil Jain, who is currently advisor in the Planning Commission, has provided an excellent survey of the natural gas sector in India, including issues relating to gas pricing, its allocation for various uses and the regulatory regime required for its healthy development. As gas is becoming an increasingly significant component of India’s energy mix, his analysis and recommendations are worth careful study.

After reading this impressive volume of essays, I am even more convinced that energy may well become the most significant constraint on India’s growth prospects. In the long term, there is no escape from the compulsion to make a strategic shift from our current reliance on fossil fuels to a pattern of economic activity based mainly on renewable sources of energy, such as solar energy and clean sources of energy like nuclear energy. In the period of transition, there will be a need to augment supplies of coal, oil and gas to fuel India’s growth, but these must be used with enhanced energy efficiency. While supplies need to be increased, there must be equal emphasis on demand side management through energy conservation, rational pricing and participation in international cooperation, such as through membership of the International Energy Agency. Najeeb Jung deserves compliments for bringing this volume together in honour of Vijay Kelkar, who has, over the years, remained a passionate champion of India’s energy security.

Shyam Saran is a former foreign secretary. He is currently, chairman,  National Security Advisory Board and RIS

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