India's self-reliance ambition in energy sector faces rising import hurdle

The essence of Prime Minister Narendra Modi’s Independence Day speech was that of Aatmnirbhar Bharat (self-reliant India), and the energy sector was its key focus. Evoking domestic manufacturers, the PM called for a decrease in imports in the country’s energy sector.

Referring to alternative energy sources such as solar, wind, green hydrogen, biofuel, and also a shift to electric mobility, the PM said: “We have to be self-reliant in our energy sector. For how long will we be dependent on others for energy? Solar, green energy, renewable, mission hydrogen, biofuel, and electric vehicles (EVs), we need to take these initiatives to the next level for energy independence.” 

India has achieved ethanol blending target five months ahead of the deadline. While blending of ethanol in petrol started during the early 2000s, it was only after 2014 that it gathered momentum. India’s ethanol blending in petrol has increased to 10.16 per cent in June this year, from barely 1.4 per cent in 2014.

Based on government estimates, India substituted over 2 million tonnes (mt) of crude oil due to ethanol blending during the last financial year, as compared to around 0.3 mt in 2013-14. The country has now set a target of blending 20 per cent ethanol with petrol by 2025, and this is expected to save around $4 billion in terms of imports by then. In the bio fuel segment, the country has set a target of 5 per cent blending of biodiesel into diesel by 2030, in addition to giving impetus to use of compressed biogas and used cooking oil. 

Ethanol might be a success story, but imports still weigh heavily on the ambition of an end-to-end domestic supply chain in other segments of the energy sector.

During the financial year 2021-22, India’s petroleum imports was around 23.8 per cent of its gross imports and the country was dependent on imports for 86 per cent of its crude oil requirement.

In renewable energy, the wind energy sector boasts of robust domestic manufacturing but the slow growth of capacity addition has hit the sector with growth slowing down from a double-digit stride during the last decade. Solar power, which during the last decade grew by a record 2,000 per cent, is largely dependent on imports for equipment, despite attempts to tax and curtail it.

During 2021-22, the import of solar cells jumped by 101 per cent over the year before. This was on the back of new basic Customs duty kicking in from April 2022. In the past two pandemic years, solar imports fell owing to a slowdown in the capacity addition. Imports, majorly from China, capture close to 75 per cent of the Indian solar market.  

Electric mobility, too, is witnessing a similar story. While the Centre has doled out several initiatives for EVs and the battery manufacturing sector in the country, the main component continues to be import market-dependent. 

India’s imports of lithium and lithium-ion, which is a key component for battery in electric vehicles, stood at Rs 8,811.45 crore in FY21 and increased to Rs 13,673.14 crore in FY22.

In coal mining, India is the world’s second-largest miner and meets 90 per cent of the thermal power generation demand. However, recent steps to completely shun imported coal have backfired as imported coal-based power plants and a certain threshold of blending shifted to domestic coal supply, which was under pressure. This year, as domestic coal supply fell short of the target, the Union power ministry directed states and power generators to import coal but rolled back the directive in three months. 

The latest entrant in the Indian energy basket is green hydrogen, which the PM and the Central government have been pushing hard for. Several industry leaders, including Adani Enterprises and Reliance Industries, have announced mega investments. 

The government is looking to offer incentives as part of the national hydrogen mission. It has permitted Foreign Direct Investment up to 100 per cent under the automatic route, waiver of Inter State Transmission System charges for inter-state sale of solar and wind power for projects to be commissioned by June 2025, declaration of trajectory for Renewable Purchase Obligation up to 2029-30, among others.

India’s energy basket continues to depend on imports, dominated by fossil fuel. A self-reliant shift with a focus on green energy sources would ensure both energy security and independence, as India enters its 76th year and is looking at 2070 as its net-zero goalpost.