INDIA’S ECONOMIC GROWTH, Energy SCENARIOS AND CLIMATE CHANGE

1. INDIA’S ECONOMIC GROWTH, Energy SCENARIOS AND CLIMATE CHANGE S L RAO at University of Alberta

2. OVERVIEW • In 2004 India was shining; then government lost elections, using that slogan • Economic fundamentals-’real’ economy-erratic industry and weak Agriculture, poor infrastructure, excessive subsidies, poor social security administrative incapability to spend efficiently on any programmes, high deficits, volatile foreign funds • Global meltdown of 2008-layoffs and slower growth in 2008, 2009 • Vast domestic market, huge potential market of the Poor, young and ambitious population, immense technological and managerial capability • Large part of population not served by commercial energy • Major fuel is and will be Coal • India’s exemplary energy efficiency and emissions record

3. The Past Ten Years And Now • GDP growth: From 1998-99-6.5, 6.1, 4.4, 5.8, 4.0, 8.5, 7.5, 9.5, 9.7*; 2008-09 7.1%? New year-5%? • Industrial production negative growth Dec 08, Jan 09. • High and Rising Savings rate • Rise in Capital formation Esp. Private Sector • Deepening Export • Inflation at single digit for a decade; 7.7% last year, 4.2 in Dec 2005; despite fuel, power, light & lubricants at 7.1; from 03-04-8.1, 03-04-9.8); Rising in 2007-08, Nov 2008- 7.8%; Now almost zero • Export growth trends; 01-02 onwards: 22.1, 15.0, 21.4, 27.6 & in 08-09 now drop of 20% • Rapid growth of I.T. and B.P.O. • Resilience: Survived face-off with USA and sanctions after nuclear explosions

4. India- A Fast Growing Economy with Greater Potential • Mobile Users - 362.2 million (Jan 2009); 101.1 Million new mobile users in last 10 months; growth continues • Internet connectivity in 2010 -200 million; still growing • 5.25 mn broadband connections (Dec 2008); growing • 5.4 million PC’s sold in 2006; slowing down • Cars: expected 30% growth p.a.; Will rise again with NANO • 2010-over 94 mn cable & satellite households • Advertising industry at Rs4000 crores=$800 million • Slow down in Retailing; Special Economic Zones, Media • Agriculture 20% of GDP, poor productivity, declining public investment, too many poorly targeted subsidies; • Weak Infrastructure-Power, Roads, etc • Social infrastructure-Health, Education, etc • Poor Delivery systems

5. Demographic Dividend • 2004-Population =1080 million of which • Age between 15 and 64=672 million • Below 15 and over 64, non-working or dependent population=408 million • Dependency ratio of 0.6; 2030-0.4 • 2020 Average Age: India-29; China-37; Japan-48: youngest working age population in world • Less children=more women at work; more saving; greater growth

6. 2009 - Macro Economy Indicators • Falling GDP growth forecasts; 2009-10- 5%?; revival in 2010 • BOP current a/c deficit widening again; also Trade deficit doubled despite fall in crude prices; last year due Oil imports bills, now export & foreign investment decline • Predicted Layoffs by year end-10 million • Corporate performance under pressure but margins ok: FY 99 4.08%; Rising from FY 03 5.32, then 7.48, 9,24, 8,73, 9.84, 10.01 (FY 08), 8.54; • Rising crude and gas costs hurt economy; but falling prices coincided with recession • To reemphasize local and cheaper energy inputs: local coal, local gas, hydro, nuclear, renewables, renewables • Climate Change and New Coal Technologies, ownership and investment issues • India is in a squeeze-economic growth imperative-fuel cost rising-emissions

7. WeakAgriculture • Supports 60% of population • Agriculture was 32% of GDP in 92-93; 17% in 2008-09 (AE) • Agriculture growth or decline has direct effect on GDP; 97 GDP + 7.8% Agriculture +8.8; 04- 8.5 & A-9,3 • Static rice, erratic wheat, production: • 08 07 06 05 00 91 81 (mn t) • R 96 93 9283 85 74 54 • W 78 7669 69 70 55 36 • Land availability limited: Since 1980 crop area for food grains static at around 124 mn hectares • Total Investment in Agriculture falling in 1990s as % to GDP from 1.92 in 90-91; 1.83 in 99-00; 2006-07- 2.3 %

8. Weak Agriculture-2 • Fall is in public investment; private keeps rising; funds for public investment diverted to poorly targeted subsidies(water, power, fertilizer) • Productivity levels are low: Yield @ 100kg/HA; India and China in 2006: paddy 31.24 & 62.65; wheat 26.19 & 44.55; cotton 6.0 & 33.3; g.nut 8.6 & 31.2, s.cane 669.4 &825.25 • Poor policies encouraging unsuitable crops: free electricity; minimum support and procurement prices same; annual price increases; no ground water policy; free power to agriculture60% population lives on agriculture • In downturn, companies turning to rural markets, with new Marketing methods • Huge potential as diversification progresses

9. Weak Infrastructure • Non-implementation of integrated energy policy; no coordination between electricity, coal and gas • Government ownership of Electricity distribution, coal • Government implementation poor on Roads • Infrastructure regulation/implementation awaiting overhaul • State ownership- high inefficiency, slow decision-making, corruption, delays • Federal Constitution; states at loggerheads with Centre; need for coordination

10. Trends of Human Development Indicators in India from 1951 to 1999-2003

11. HDI indicators Improvement on all fronts; others have fared much better HDI Rank out of 174; Sri Lanka 89; China 96; Indonesia 110; India 124; Pakistan 148 India: +60 population in millions-2001-6.3%=65; 2016-8.9%=113 • -Age 15-59 2001-598mn; 2016-811mn • -Urbanization: 2001-27.8%; 2030-50%? • -Issues: Livelihoods, health, education, housing, water, roads, sanitation, social security, law and order • Poor public health and important reason for low HDI

12. Current Economic Crisis: Not just an imported phenomenon • Rising deficits-not shown by Centre in Budgets-Oil Bonds, FCI bonds, Fertilizer bonds, Farmer Loan write-offs, etc • Putting Growth over inflation control • Desperation to add to Foreign Exchange Reserves • Participatory Notes and round-tripping of Indian funds • Exemption from short-term capital gains tax; Mauritius as largest foreign investor; Very volatile FII funds-stock market like yo-yo as funds ebbed and flowed 4. Power shortages; many not connected

13. Liquidity and Falling Rupee • Banking meltdown in USA worsened situation • FII’s, foreign banks withdrew to support liquidity in their HQ • Stock markets collapsed-SENSEX from 21000 to almost 8000 • Rupee collapsed-in 11 months from Rs 38 to $ to Rs 50 • Overseas borrowing marked to market-upset balance sheets of Indian companies and • P & L as interest costs shown in Rupees • Energy investment affected adversely

14. Poor Implementation-Lack of basic Administrative Reform • Government has been very inefficient in its expenditures; more subsidies than asset building • Similarly Public Distribution System-e.g. food grains, sugar, edible oils, cheap kerosene; • Other subsidies poorly targeted, physical handling and inefficiencies-fertilizers, free or cheap power to agriculture; • Social Programmes- NHRM, SSA-not efficient in spending honestly. NREG should have added to purchasing power but with estimates ranging from 40 % to 60% wasted and leakage, its effect has been reduced. • Unspent funds in most programmes • Infrastructure spending is also slow, eg., NHAI. • Many projects delayed due too many Ministries, lack of coordination, non-accountability of bureaucracy

15. India’s Potential • World’s Largest Pool of Trained Manpower: • 200 million college graduates (~16%) • 500 million trained, skilled workforce (~40%) • Universal Literacy 2. World’s Leaders in Industry and Commerce • 30 of Fortune • 100 from India 3. India Accounts for 10 % of World Trade A broad scope of products and services • India as a Source of Global Innovations New Businesses, New Forms of Organization, New Technologies

16. India’s Potential 5. Focus on the Bottom of the Pyramid as a • Source of Innovations for the World • (Leaders in Health, Education, Energy, Transportation, Sustainable Development for all) • Markets 6. A Flowering of Art, Literature, Films and Science ( 10 Nobel Prize Winners from India) 7. A New Moral Voice for People Around the World India as a country where Universality and Inclusiveness is widely practiced. India becomes the most Benchmarked country for its capacity to accept and benefit from its diversity TO IMPROVE LIFE OF MANY, & ACHIEVE ITS POTENTIAL, INDIA NEEDS CONSISTENT HIGH ECONOMIC GROWTH AND ENERGY SUPPLIES

17. Energy Consumption • India has lowest energy consumption today • Even with 8% annual growth till 2030 India will not catch up with most others • Coal will be the most important energy source • With lower calorific content, electricity using Indian coal will be much more

18. Per capita Energy consumption by Countries

19. India has low CO2 emissions (CO2 equivalent emissions-mmt)

20. Major Investment Required in Energy Supply & Infrastructure Source: International Energy Agency

21. 1965 2001 India’s Energy Mix Over Time (%)

22. Constraints With just 4% of global GHG emissions, India under pressure to curb fossil fuel consumption India must find ways to decouple growth in GDP and fossil fuel for energy, but ensure universal lifeline access • Primary Energy in million tonnes 2005-06 2031 -32 • Oil equivalent 513 1536 to 1887 • Of which, Non-commercial 28% • Coal 38% • Oil & Gas 8% • Hydro & Nuclear 26%

23. The Burden of Traditional Fuels in Rural India Study based on an integrated survey of 15,293 rural households from 148 villages in three states of rural North India and one state in South India. Symptoms of diseases related to air and water pollution, expenditure on health and person days lost, demographic and socio-economic information, measurements of air quality in the kitchen, outside the kitchen and the home were collected. Indicators for respiratory functions (Peak Expiratory Flow) were measured for most adults present. The doctors examined a sub-sample of individuals for confirmation of diseases. The study estimated that • 96% of households use biomass energy, 11% use kerosene and 5% use LPG for cooking. Most of them use multiple fuels. • Forests contribute 39 % of the fuel wood need. • 314 Mt of bio-fuels are gathered annually. • 85 million households spend 30 billion hours annually in fuel wood gathering. • Respiratory symptoms are prevalent among 24 million adults of which 17 million have serious symptoms. • 5% of adults suffer from Bronchial asthma, 16% from Bronchitis, 8.2% from Pulmonary TB and 7% from Chest infection. • Risk of contracting respiratory diseases and eye diseases increase with longer duration of use of bio-fuels. Total economic burden of dirty biomass fuel estimated at Rs.299 billion ($7.5 bn) using a wage rate of Rs.60 per day, comprising of opportunity cost of gathering fuel, working days lost due to eye infections and respiratory diseases, and the cost of medicine. As women are the primary sufferers of the adverse impact of use of biomas fuels, there is a close linkage between gender and energy. Gender and energy issues have remained on the periphery of energy policy, and require greater attention and backing. Source: Parikh Jyoti et al (2005)2 Integrated Energy Policy: Report of the Expert Committee Pg No7

24. Rural Household Energy Consumption mainly firewood and dung in rural, electricity in urban

25. Commercial Energy Requirements (One Scenario-Coal dominates; oil next; gas could rise)

26. Model Results-Commercial energy requirements • BAU-from 391 MTOE in 06-07 to 2123 in 2031-32, of which coal rises from 193 to 1176 • Hybrid-from 391 to 1503 in 2031-32 with coal from 193 to 767 • Energy intensity in BAU scenario falls from 0.022 kgoe per Rupee of GDP in 2001 to 0.017 in 2031 fall of 23% • In Hybrid-from 0.022 to 0.012, fall of 29%

27. Projected Commercial Primary Energy Requirements Note: Electricity generation and peak demand in 2003-04 is the total of utilities and non-utilities above 1 MW size. Energy demand at bus bar is estimated assuming 6.5% auxiliary consumption. Peak demand is estimated assuming system load factor of 76% up to 2010, 74% for 2011-12 to 2015-16, 72% for 2016-17 to 2020-21 and 70% for 2021-22 and beyond. The installed capacity has been estimated keeping the ratio between total installed capacity and total energy required constant at the 2003-04 level. This assumes optimal utilization of resources bringing down the ratio between installed capacity required to peak demand from 1.47 in 2003-04 to 1.31 in 2031-32. Integrated Energy Policy : Report of the Expert Committee Pg No 20

28. Energy efficiency • Ratio of Total Primary energy Consumption to GDP in PPP terms-2005: • India 0.15;China 0.22;USA 0.21; Russia 0.47 • India has shown in 2001-06 least energy consumption growth to GDP growth: Av GDP +8% p.a. & 3.7% annual energy consumption growth • India’s population 3,5 times USA and 3 times EU20, but GDP growth is double with lower absolute incremental consumption of fossil fuels • China grew faster on incremental basis; but in absolute terms, since 2002, it consumed over 9 times fossil fuel compared to EU20, 10 times of USA, and 11 times India • India has achieved this result by denying modern commercial fuels to over half its population

29. Energy Efficiency must improve further in India • Indian energy intensity is =Japan & Brazil • Below U.K. at 0.14, Denmark-0.12 • India can improve energy efficiency by at least 20% based on currently available technologies • Can improve especially in some industries, buildings, transport,

30. Maximum values of domestic coal availability-not enough for needs

31. Estimates of bio-diesel production

32. Renewable energy source potential

33. Other Efficiency Measures & Sources-POWER • Clean Coal can double life of coal from present 40-45 years from conventional mining • Coal bed methane can double gas reserves • Circulating Fluidized Bed Combustion (CFBC) technology enhances options with low quality Indian coal and lignite • Integrated Gasification Combined Cycle technology (IGCC) with imported coal can raise consumption efficiencies • Nuclear energy • Expanded Hydrocarbon supply options in India and overseas • Integrated renewable energy policy • Solar cells in arid lands, deserts, mountaintops, home & vehicle roofs • Market reforms-subsidies, free energy, efficiency of generation, distributed power

34. CO2 Emissions Profile (In million tonnes)

35. Barriers to GHG MitigationPOWER • High upfront capital cost per MW of Power & hence tariffs, cross-subsidies • Lack of experience and technical know-how in advance power generation technologies • IGCC not demonstrated commercially for high ash Indian coal • Lack of funds with states for R & M • Renewables-high generation cost

36. Barriers to GHG MitigationINDUSTRY • Cement, iron & steel, petrochemicals, other chemicals improved • Pulp & Paper, Textiles, Fertilizers, etc, behind • SME’s-credit & capital constraints

37. Barriers to GHG MitigationTRANSPORT • Need for tough regulatory standards-e,g, fuel economy on auto manufacturers • Huge investments required • MRTS- divert resources from other priorities; & no door-to door connectivity • Need to change lifestyles and individual preferences

38. Regulatory Aspects of GHG Mitigation • EXISTING: Programmes for energy efficiency in industry, appliances, buildings, municipalities • UMPP-supercritical boilers • Created Bureau of Energy Efficiency • Notified norms for vehicle exhaust emissions from 2010 • Minimum 10% by 2012 of total energy sales as R.E. • REQUIRED: Trading in certified energy savings in excess of mandated savings • Incentives for Energy efficiency-e.g., differential taxation on certified energy efficient appliances • Financing of energy efficiency through public private partnerships

39. CBM – cool bed methane: CFL – compact fluorescent lamp, LED – light emitting diode; HVDC – high voltage direct current; HVAC – high voltage alternating current; IGCC – integrated glasification combined cycle; T & D – transmission and distribution R & D – research and development

40. THANK YOU