India Subsidies

India—US$20.4 billion in 2016

The total value of energy subsidies from the central government of India, quantified in a latest inventory, has declined substantially between 2014 and 2016, from 35.8 billion USD to 20.4 billion USD. The same report points out that 18 subsidies are provided by the central government to both coal mining and coal consumption, predominantly in power generation. But financial information was not publicly available for six of these subsidies, which thus remained unquantified. According to the inventory covered in this report, total subsidies for the coal mining sector have decreased in India from 2.6 billion USD in 2014 to 2.3 billion USD in 2016. Subsidies are largely provided through tax breaks (government revenue foregone), with concessional duties and taxes making up around 90 per cent of total coal subsidies. Budgetary transfers only account for 10 per cent of the total subsidy amount over the review period. However, the report points out that it was difficult to exactly calculate the subsidies to coal and goal fired power generation because of lack of data. The Inventory showed that in one coal bearing state there has been an increase in subsidies.

Coal-fired electricity generation benefits from subsidies such as income tax exemptions and access to land at preferential rates, says the report, adding, measures of support to coal consumption in India include the overall coal pricing regime and concessional import duty on coal.

Money Life reported on another research study by the International Institute for Sustainable Development (IISD) on fossil fuels which reveals that on an average over the years 2013 and 2014, India provided $103 million per year in national subsidies to oil, gas and coal producers. In particular, capital outlay targeting the extraction and production of crude oil, natural gas, coal and the development of fossil-fueled power projects constituted the largest share of India’s national subsidies to fossil fuel production, averaging $64 million per year across 2013 and 2014. Other support in the form of tax breaks for coal excise duties and fossil fuel transport infrastructure also contributed to this total with an average of $40 million each in 2013 and 2014.

The IISD 2017 report finds that subsidies in the oil and gas sector reduced significantly from 26 billion USD in 2014 to 6.8 billion in 2016 mainly in the consumption sphere, partially due to India’s reforms and partially due to the decrease in the world price for oil. Subsidies to electricity T&D increased from 6.7 billion USD in 2014 to 9.9. billion USD in 2016. The total subsidies to coal however remained relatively stable at about 2.3 billion USD over the period in review.

Overall, the scale of support to fossil fuels (coal, oil and gas) has remained more significant than subsidies to renewables through the entire review period.

Policies and Programmes in Place

As a member of the G20 nations, India in 2009 committed to “phase out inefficient fossil fuel subsidies that encourage wasteful consumption while providing targeted support for the poorest.” The government has been reducing the subsidies on natural gas for the larger section of the population. While there is not much information available about the scale of reduction strategies of fossil fuel subsidies in production, the government seems to be taking up some important measures in targeting the subsidies at the consumers’ level. The government is also trying to increase the subsidies on renewables. They are targeting to enhance clean cooking options and improved challahs through various schemes. However, overall, the scale of support to fossil fuels (coal, oil and gas) has remained more significant than subsidies to renewables through the entire reviewed period.

Kirk Smith, in an article in the Hindustan Times says, “India has attempted quite strongly to reform household energy for the benefit of health, through its new national LPG (Liquefied Petroleum Gas) progammes. LPG burns far cleaner than biomass (which is relied on by nearly 700 million rural Indian households), causes much less localized air pollution and contributes less black carbon, which has recently emerged as a leading driver of climate change”. While the government has been asking existing LPG consumers to give up subsidies if they can afford to buy non-subsidized LPG, it has also promoted a scheme called the ‘‘PM Ujjwala Yojana” (PMUY) that aims at meeting the target of achieving universal clean cooking coverage.

In India, household electrification and provision of clean cooking fuel have been twin challenges, with the former having received priority over the latter. This has resulted in nearly 40% of our population being without access to clean cooking fuel. The situation in rural areas, with a significant section of the populace below the poverty line, is grim, and is changing quite slowly. The PMUY is expected to overcome this. Kerosene serves as cooking fuel for only 1% and 6% of the total rural and urban households, respectively. To address this grim picture, the National Energy Policy (NEP) plans to make this one of its most significant priorities so that it can suggest a robust strategy forward to provide clean cooking fuel for all in the quickest timeframe.

Kerosene contributes to lighting solutions in about 26% of rural households and for 4% of urban households. About 304 million Indians are still without access to electricity and the government of India thinks it would provide 100 per cent electricity to all rural people by 2019 through a scheme called Deen Dayal Gram Jyoti Yojana (DDUGJY) and to all people by 2022. However, there is still no clear strategy to address how fossil fuel subsidies will end because India’s reliance on coal fired power plants is not going to end soon.

On the oil and natural gas front as well, the government has ambitious plans to continue exploring those. Given India’s growing energy demands, reliance on imports and limited domestic fossil fuel resources, the country has ambitious plans to increase domestic oil & gas production and to exploit all possible forms of this energy to the fullest. Our Honorable Prime Minister has urged all stakeholders to increase the domestic production of oil and gas to reduce import dependence from 77 % to 67% by the year 2022.

Kirk Smith, in the above referred article (ref 5) argues that while there is some government financial support for LPG, it may be dwarfed today by how much public money is being spent to subsidize the other fossil fuels that are a big part of the dirty air epidemic. Smith further argues that the Indian government is paying twice for fuels that help pollute air: on the front end for the subsidies themselves, and then again for the litany of costs in terms of public health deterioration.

Way Ahead

India has miles to travel with regard to phasing out fossil fuel subsidies. In fact, it seems nearly impossible in the near future. The government sees LPG as a cleaner fuel. But with a substantial part of India still out of the ambit of electricity connections, things will certainly take time. However, the government should come up with a concrete plan to phase out fossil fuels that is missing now. Such a plan should not only have a single window information system on all the subsidies being provided to both explorers/producers and consumers, but also incorporate the inter-linking of policies and programs that are aimed towards providing and/or ending subsidies. The current information system is lacking.

The health impacts of fossil fuel subsidies are slowly being realized by the government as more and more studies are coming forth. The government should therefore lay out a road map for ending fossil fuel subsidies linking them to renewable energy provisions and subsidies. Shelagh Whitley of the Overseas Development Institute, and co-author of the IISD-ODI-ICF study mentioned above in this report (ref. 3) highlights another important point about lack of transparency. According to Whitley, “though there have been significant positive changes in terms of a decline in India’s subsidies to oil and gas consumption, there is still very limited transparency in terms of subsidies provided to the energy sector. The road map to end fossil fuel subsidies needs to be transparent and needs to address equity issues. End of subsidies should not be done at the cost of the poor, marginalized and excluded communities of the country.”

Learn More

Global Subsidies Initiative Report: ‘India’s Energy Transition: Mapping subsidies to fossil fuels and clean energy in India’. International Institute for Sustainable Development (IISD), 2017.
http://www.moneylife.in/article/india-provided-103-million-per-year-in-national-subsidies-to-oil-gas-and-coal-producers/44075.html
http://www.hindustantimes.com/environment/choose-health-end-fossil-fuel-subsidies/story-qIZUrkRkffuUAtukUapdQN.html
Draft National Energy Policy, Niti Ayog, Govt. of India, 2017.
Annual Report for 2016-2017, Ministry of Petroleum and Natural Gas, Govt. of India.