Energy has been universally recognized as one of the most important inputs for economic growth and human development. There is a strong two-way relationship between economic development and energy consumption. On one hand, growth of an economy, with its global competitiveness, hinges on the availability of cost-effective and environmentally benign energy sources, and on the other hand, the level of economic development has been observed to be reliant on the energy demand.
Energy intensity (Table E.1g) is an indicator to show how efficiently energy is used in the economy. The energy intensity of India is over twice that of the matured economies, which are represented by the OECD (Organization of Economic Co-operation and Development) member countries. India’s energy intensity is also much higher than the emerging economies—the Asian countries, which include the ASEAN member countries as well as China. However, since 1999, India’s energy intensity has been decreasing and is expected to continue to decrease.
The indicator of energy–GDP (gross domestic product) elasticity, that is, the ratio of growth rate of energy to the growth rate GDP, captures both the structure of the economy as well as the efficiency. The energy–GDP elasticity during 1953–2001 has been above unity. However, the elasticity for primary commercial energy consumption for 1991–2000 was less than unity (Planning Commission 2002). This could be attributed to several factors, some of them being demographic shifts from rural to urban areas, structural economic changes towards lesser energy industry, impressive growth of services, improvement in efficiency of energy use, and inter-fuel substitution.
The energy sector in India has been receiving high priority in the planning process. The total outlay on energy in the Tenth Five-year Plan has been projected to be 4.03 trillion rupees at 2001/02 prices, which is 26.7% of the total outlay. An increase of 84.2% is projected over the Ninth Five-year Plan in terms of the total plan outlay on energy sector. The Government of India in the mid-term review of the Tenth Plan recognized the fact that under-performance of the energy sector can be a major constraint in delivering a growth rate of 8% GDP during the plan period. It has, therefore, called for acceleration of the reforms process and adoption of an integrated energy policy.
In the recent years, the government has rightly recognized the energy security concerns of the nation and more importance is being placed on energy independence. On the eve of the 59th Independence Day (on 14 August 2005), the President of India emphasized that energy independence has to be the nation’s first and highest priority, and India must be determined to achieve this within the next 25 years.

Demand and supply scenario
In the recent years, India’s energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. Primary commercial energy demand grew at the rate of six per cent between 1981 and 2001 (Planning Commission 2002). India ranks fifth in the world in terms of primary energy consumption (Table E.1), accounting for about 3.5% of the world commercial energy demand in the year 2003. Despite the overall increase in energy demand, per capita energy consumption (Table E.1c) in India is still very low compared to other developing countries.

India is well-endowed with both exhaustible and renewable energy resources. Coal, oil, and natural gas are the three primary commercial energy sources. India’s energy policy, till the end of the 1980s, was mainly based on availability of indigenous resources. Coal was by far the largest source of energy. However, India’s primary energy mix has been changing over a period of time.

Despite increasing dependency on commercial fuels, a sizeable quantum of energy requirements (40% of total energy requirement), especially in the rural household sector, is met by non-commercial energy sources, which include fuelwood, crop residue, and animal waste, including human and draught animal power. However, other forms of commercial energy of a much higher quality and efficiency are steadily replacing the traditional energy resources being consumed in the rural sector.
Resource augmentation and growth in energy supply has not kept pace with increasing demand and, therefore, India continues to face serious energy shortages. This has led to increased reliance on imports to meet the energy demand.

Coal
India now ranks third amongst the coal producing countries in the world. Being the most abundant fossil fuel in India till date, it continues to be one of the most important sources for meeting the domestic energy needs. It accounts for 55% of the country’s total energy supplies.
Through sustained increase in investment, production of coal increased from about 70 MT (million tonnes) (MoC 2005) in early 1970s to 382 MT in 2004/05. Most of the coal production in India comes from open pit mines contributing to over 81% of the total production while underground mining accounts for rest of the national output (MoC 2005). Despite this increase in production, the existing demand exceeds the supply. India currently faces coal shortage of 23.96 MT. This shortage is likely to be met through imports mainly by steel, power, and cement sector (MoC 2005). India exports insignificant quantity of coal to the neighbouring countries. The traditional buyers of Indian coal are Bangladesh, Bhutan, and Nepal.
The development of core infrastructure sectors like power, steel, and cement are dependent on coal. About 75% of the coal in the country is consumed in the power sector (MoC 2005).

Power
Access to affordable and reliable electricity is critical to a country’s growth and prosperity. The country has made significant progress towards the augmentation of its power infrastructure. In absolute terms, the installed power capacity has increased from only 1713 MW (megawatts) as on 31 December 1950 to 118 419 MW as on March 2005 (CEA 2005). The all India gross electricity generation, excluding that from the captive generating plants, was 5107 GWh (gigawatt-hours) in 1950 and increased to 565 102 GWh in 2003/04 (CEA 2005).
Energy requirement increased from 390 BkWh (billion kilowatt-hours) during 1995/96 to 591 BkWh (energy) by the year 2004/05, and peak demand increased from 61 GW (gigawatts) to 88 GW over the same time period. The country experienced energy shortage of 7.3% and peak shortage of 11.7% during 2003/04. Though, the growth in electricity consumption over the past decade has been slower than the GDP’s growth, this increase could be due to high growth of the service sector and efficient use of electricity.
Per capita electricity consumption rose from merely 15.6 kWh (kilowatt-hours) in 1950 to 592 kWh in 2003/04 (CEA 2005). However, it is a matter of concern that per capita consumption of electricity is among the lowest in the world. Moreover, poor quality of power supply and frequent power cuts and shortages impose a heavy burden on India’s fast-growing trade and industry.

Oil and natural gas
The latest estimates indicate that India has around 0.4% of the world’s proven reserves of crude oil. The production of crude oil in the country has increased from 6.82 MT in 1970/71 to 33.38 MT in 2003/04 (MoPNG 2004b). The production of natural gas increased from 1.4 BCM (billion cubic metres) to 31.96 BCM during the same period. The quantity of crude oil imported increased from 11.66 MT during 1970/71 to 81 MT by 2003/04. Besides, imports of other petroleum products increased from 1 MT to 7.3 MT during the same period. The exports of petroleum products went up from around 0.5 MT during 1970/71 to 14 MT by 2003/04. The refining capacity, as on 1 April 2004, was 125.97 MTPA (million tonnes per annum). The production of petroleum products increased from 5.7 MT during 1970/71 to 110 MT in 2003/04.
India’s consumption of natural gas has risen faster than any other fuel in the recent years. Natural gas demand has been growing at the rate of about 6.5% during the last 10 years. Industries such as power generation, fertilizer, and petrochemical production are shifting towards natural gas. India’s natural gas consumption has been met entirely through domestic production in the past. However, in the last 4/5 years, there has been a huge unmet demand of natural gas in the country, mainly required for the core sectors of the economy. To bridge this gap, apart from encouraging domestic production, the import of LNG (liquefied natural gas) is being considered as one of the possible solutions for India’s expected gas shortages. Several LNG terminals have been planned in the country. Two LNG terminals have already been commissioned: (1) Petronet LNG Terminal of 5 MTPA (million tonnes per annum) at Dahej, and (2) LNG import terminal at Hazira. In addition, an in-principle agreement has been reached with Iran for import of 5 MTPA of LNG.

Renewable energy sources
Renewable energy sources offer viable option to address the energy security concerns of a country. Today, India has one of the highest potentials for the effective use of renewable energy. India is the world’s fifth largest producer of wind power after Denmark, Germany, Spain, and the USA. There is a significant potential in India for generation of power from renewable energy sources—, small hydro, biomass, and solar energy. The country has an estimated SHP (small-hydro power) potential of about 15 000 MW. Installed combined electricity generation capacity of hydro and wind has increased from 19 194 MW in 1991/92 to 31 995 MW in 2003/04, with a compound growth rate of 4.35% during this period (MoF 2005). Other renewable energy technologies, including solar photovoltaic, solar thermal, small hydro, and biomass power are also spreading. Greater reliance on renewable energy sources offers enormous economic, social, and environmental benefits.
The potential for power production from captive and field-based biomass resources, using technologies for distributed power generation, is currently assessed at 19 500 MW including 3500 MW of exportable surplus power from bagasse-based cogeneration in sugar mills (MNES 2005).

Future scenario
Increasing pressure of population and increasing use of energy in different sectors of the economy is an area of concern for India. With a targeted GDP growth rate of 8% during the Tenth Five-year Plan, the energy demand is expected to grow at 5.2%. Driven by the rising population, expanding economy, and a quest for improved quality of life, the total primary energy consumption is expected to about 412 MTOE (million tonnes oil equivalent) and 554 MTOE in the terminal years of the Tenth and Eleventh Plans, respectively (Planning Commission 1999).
The International Energy Outlook 2005 (EIA 2005b) projects India’s gas consumption to grow at an average annual rate of 5.1%, thereby reaching 2.8 trillion cubic feet by 2025 with the share of electric power sector being of 71% by that time. Coal consumption is expected to increase to 315 MT over the forecast period. In India, slightly less than 60% of the projected growth in coal consumption is attributed to the increased demand of coal in the electricity sector while the industrial sector accounts for most of the remaining increase. The use of coal for electricity generation in India is expected to increase by 2.2% per annum during 2002–25, thus requiring an additional 59 000 MW of coal-fired capacity. Oil demand in India is expected to increase by 3.5% per annum during the same time.

It is quite apparent that coal will continue to be the predominant form of energy in future. However, imports of petroleum and gas would continue to increase substantially in absolute terms, involving a large energy import bill. There is, therefore, an urgent need to conserve energy and reduce energy requirements by demand-side management and by adopting more efficient technologies in all sectors.