It’s time to cushion India from the same ‘oil shock’ story
With depressing familiarity, geopolitical conflict has again hit economies around the world, leading to a surge in oil prices and raising the spectre of hard-won economic recoveries unravelling.
The tragic conflict between Russia and Ukraine saw oil prices jump to $139 per barrel last week, the double of what it was in early December 2021. The latest flashpoint makes the task of Indian economic policymakers harder.
The harsh reality is that fossil fuels will continue to react to troubling world events in a way detrimental to economies around the world and, unfortunately, one can expect more future geopolitical disruptions.
The clues to our future lie in our recent past. The Iraq wars, the September 11 terror attacks, the 2008 financial meltdown, and the original oil shock of 1973 due to the Arab-Israeli war: All those events created surges in crude oil prices, hurting oil-importing economies.
The International Monetary Fund has said the Russia-Ukraine conflict is expected to lead it to further reduce its global growth forecast from an earlier estimate of 4.4 per cent in January, already pruned from 5.9 per cent last year. And a recent Nomura report said India, as a net oil importer, would be among the worst-hit in Asia, with every 10 per cent rise in the crude oil price cutting 0.2 per cent from its growth rate.
According to the petroleum ministry, the country’s crude oil import bill will cross $100 billion in the current fiscal year, which is almost double that of last fiscal year.
The latest European conflict teaches us that India must act like an emergency responder in moving away from fossil fuels. Not just moving towards renewables, which is already part of the plan, but also ensuring a broader shift of the entire energy value chain to better energy efficiency. Here, we are still in the early days.
The good news is that many countries are journeying away from fossil fuels due to the existential threat of climate change. This process has accelerated following the COP26 summit last year, when India set itself an ambitious goal of 500 GW of non-fossil fuel electricity capacity by 2030 from around 160 GW today.
The journey is no longer only about just fighting global warming, critical though that is. It must now also be about extricating our economy from the vice-like grip of oil.
As someone who is actively involved in India’s unprecedented transition to clean energy, I would like to offer a few ideas to insulate our economy from disruptive oil shocks.
Prepare for an ambitious energy transition
Policymakers, companies, think tanks, economists, NGOs, the media, and respected influencers need to look beyond fighting climate change as the reason for the world’s historic energy transition. They must build a stronger national consensus to further accelerate our journey away from oil’s sway. All stakeholders must push for more vigorous steps — immediately. This should include a more aggressive expansion of renewables. Further, opinionmakers must ask for renewable and green hydrogen mandates, especially in hard-to-abate sectors like fertilisers, steel, and refining.
These attempts to build a green common consent —on the level of a national movement —should also encompass increasing the popularity of e-vehicles and announcing more incentives for both manufacturers and customers to build this sector on a war footing. Last year alone, India saw a 132 per cent surge in sales of electric scooters to around 234,000. Boosting this will not only help cut demand for oil but also have a positive environmental spinoff.
More ambitious targets, broader shift
In recent years, and particularly after COP26 last year, the world has set itself ambitious climate goals to prevent the earth from warming beyond 1.5 degree Celsius above pre-industrial levels.
As a result of the Ukraine conflict, the import-dependent European Union has stated the “quicker we switch to renewables and green hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system”.
As part of its own strategy, India needs to look for more ambitious renewable targets. Currently, India generates 12-13 per cent of its power from renewables and this could increase to around a third by 2030. If we further hasten our renewables push —and the government has been very nimble and supportive in enabling the energy transition —we will better insulate our economy from crude oil’s erraticism.
Currently, India, under Prime Minister Narendra Modi’s decisive leadership, has targeted 450 GW of renewables by 2030 (excluding hydro and nuclear). This is an impressive goal. Now perhaps, more than ever, is the time to consider fast-tracking reaching the target or even ponder exceeding it.
But moving the economy away from crude oil and focusing on clean energy will need targets beyond renewable energy deployment. The clean energy transition will need to encompass industrial sectors, as well as logistics and transport. It must be a shift in the entire energy value chain that includes aviation, marine transport, as well as manufacturing, including steel, refining, and fertilisers. The development of a clean energy value chain needs to be holistic, including a push for domestically manufacturing solar panels, cells, electrolysers, and storage batteries.
Things are moving. In terms of renewables, the government’s drive for the domestic production of components via the laudable PLI (production-linked incentive) scheme will result in cost savings overall and cut the need for fossil fuel-powered energy. This needs to be replicated across sectors, and this expanded domestic output must be powered by cleaner fuels —different moving parts of the energy shift working in conjunction.
Further, the government may look at a balancing approach by increasing disincentives for imports and increasing incentives for local production; an extension to Aatmanirbhar Bharat.
India Inc: Roll up your sleeves
The private sector, too, must fast-track plans to decarbonise and cut down its overdependence on oil for three reasons. One, it is the morally sound thing to do as companies are part of a broader societal, economic, environmental, and national ecosystem. Secondly, it makes business sense to move towards alternative cleaner fuels, which are cheaper than fossil fuels. Thirdly, as companies also suffer from oil price surges stemming from global events, they need to work harder to insulate themselves. How often can firms keep adjusting their targets downwards, as well as also plan for longer-term growth, if oil price spikes keep occurring?
Companies in India need to move at warp speed to shift to wind, solar, or hybrid renewable solutions and decarbonise their production and supply chain processes by moving to green hydrogen. This will ensure sustainable growth and allow them to play their part in shock-proofing the economy from extreme external events.
India’s dynamic growth journey for the betterment of all its people over the past two decades must be better protected from regular interruptions if we are to enter Amrit Kaal (time of auspicious growth and prosperity). Oil shocks like that from the latest European hostilities threaten to slow our journey to that destination. Hence, we must be even more daring in our fossil-free dreams.
The writer is chairman and CEO of ReNew Power