A new wave of American sanctions on Iran is coming into effect, a consequence of the Trump administration’s withdrawal from the Iran nuclear deal in May 2018. Public debate over high oil prices in India has focused on the high rate of central and state taxation and the necessity to bring petroleum under the ‘one-nation, one-tax’ Good and Services Tax (GST) framework. But the reality is even more sobering. The sanctions have brought to the fore India’s acute and growing oil dependence that has become an expensive crisis threatening its energy security, economic vitality, national security and environmental sustainability. The current high fuel prices are the ideal window of opportunity for the government to come up with an ambitious framework policy consisting of regulatory instruments and incentive structures to rapidly reduced dependence on imported petroleum.
India’s rapid economic growth and the state’s inability to build commensurate infrastructure has widened the gap between already inadequate public transportation and current demand, resulting in a swiftly growing stock of private vehicles addicted to oil. India’s acute oil dependency with the country importing over 80% of its oil prevents it from fully realizing true strategic autonomy in its foreign policy, reliable access to energy, a more favorable environment in its cities and a lower national emissions footprint. Huge traffic snarls and filthy air quality that has sent the number of cases with respiratory illnesses soaring have caused a marked deterioration in the quality of life in Indian cities.
Despite the crushing imported hydrocarbons bill which currently stands at $87.7 billion, India policymaking elites seem trapped in incrementalism with respect to powerful alternatives such as electric vehicles, CNG cars and alternative fuels. While stricter emission limits and fuel economy standards on petrol and diesel vehicles may produce emissions and fuel savings in the short term, the aim should be to hasten the onset of the nascent electric mobility revolution in the two wheeler, three wheeler and four wheeler segments.
Ethanol from sugarcane certainly holds the potential to displace a fraction of imported petroleum but the 10% ethanol blending target in petrol by 2022 is insufficient as stand-alone measure. Another promising vector of government action is its decision to rapidly expand the CNG pump network in the country making the ownership of CNG vehicles attractive. But such substitution initiatives need to be coupled with policies to incentivize corporations and customers to buy hybrids and eventually fully electric vehicles.
Promises made by ministers and high-level government officials regarding India ensuring 100% EV sales by 2030 have not translated into policy. The incrementalist Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) framework is currently on hold. Targeted support by the state such as subsidizing lithium ion batteries, already being contemplated by the Prime Minister’s Office (PMO), combined with strategic communication that equates electric vehicle ownership with sophistication and progressiveness are urgently required to dent India’s ominous oil dependence trajectory.
Confronted with policy uncertainty but tantalized by market potential, some automobile companies have responded to growing demand among India’s increasingly environmentally-conscious urban customers with hybrid as well as fully electric models and a push to build charging infrastructure. A quick analysis of the Indian auto-market indicates different approaches with some corporations preferring to offer hybrids and others experimenting with fully electric vehicles for urban, environmentally-conscious consumers. Such differences may result in competing demands on limited state subsidies that could be offered.
India’s policy elites stand at an inflection point. They can either view the current milieu of high oil prices in India as a transient crisis like previous ones or they can use it as an opportunity to take decisive steps towards a comprehensive umbrella policy that assigns specific roles and incentives for a range of petroleum alternatives while maintaining a supportive regulatory environment. This could include a massive push to ensure mass-transit in mission mode, a more stringent deadline for retiring vehicles older than a certain timeframe nationwide based on the best available science and a nominal cess on new petrol and diesel vehicles to be transferred to a temporary escrow fund to handhold electric vehicle technology till it matures.
The recent US waiver to India and other countries to keep importing Iranian oil is a temporary measure. It will neither solve India’s huge oil import bill, an opportunity cost on funds that could be used for development purposes, nor resolve the environmental fallout endangering the health outcomes of children in pollution-choked Indian cities. A new framework policy that views India’s oil dependence as a millstone around its comprehensive national power and unleashes the light hand of the state, animal spirits of the market and the entrepreneurial zeal of the Indian people is urgently needed.
- Prof. Chaitanya Ravi, Assistant Professor – Centre for Public Policy