Four steps to make India’s energy transition less painful

(Eco Business, 16 Dec 2022) India must make a fiscal transition alongside the energy transition. Here's how it could make a start.

Over the coming decades, India like most countries will go through a significant energy transition, steadily reducing the share of fossil fuels in its energy portfolio. Since fossil fuels account for a significant share of government revenues, this energy transition will impact government budgets and necessitate a concurrent fiscal transition.

How India, as one of the world’s largest economies and democracies navigates these transitions – which must be accompanied by socio-economic transitions – will be instructive for policymakers around the world.

The fiscal transaction will not just impact India’s national or central government but its sub-national or state governments too. As in many federal systems, India’s central and state governments frequently have conflicting agendas in the energy sector. The agenda at the central level is influenced by macroeconomic stability, economic growth, and geostrategic issues, whereas the states are influenced more by local concerns and political realities, such as energy access, affordability, and local jobs. The energy transition will highlight these distinctions.

Seven Indian states produce almost three-fourths of India’s coal. These are also among the poorest states in terms of per capita state GDP, and rely heavily on coal for revenue. The majority of states get considerable revenue from fossil fuels, which is set to decline dramatically – as a share of state GDP, this revenue will decline from 2.3 per cent in 2019 to 0.32 per cent by 2040 in coal-producing Jharkhand. The industrialised states of Gujarat, Tamil Nadu and Karnataka will also face a steep fall.

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Eco Business, 16 Dec 2022: Four steps to make India’s energy transition less painful