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India reduces expenditure on energy subsidies by USD 15.4 billion: IISD, ODI and ICF India

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Renewable subsidies rise but coal subsidies remain stagnant, despite increased social costs to India’s GDP driven by air pollution and health care expenses

NEW DELHI, December 1, 2017—A new report released by the International Institute of Sustainable Development (IISD), the Overseas Development Institute (ODI) and ICF India shows a decline in India’s central government energy subsidies by over USD 15 billion between 2014 and 2016.

According to the report, the total value of energy subsidies from the central government has declined substantially between financial years (FY) 2014 and 2016, from INR 2,16,408 crore (USD 35.8 billion) to INR 1,33,841 crore (USD 20.4 billion). The report states that the decline could be because of India’s reforms to curb wasteful consumption in oil and gas subsidies as well as due to the decrease in global oil price.

“While the decline is significant, subsidies still favour fossil fuels much more than renewables. This is not well aligned with several government objectives—reducing harmful air pollution and tackling climate change through its Nationally Determined Contribution (NDC), both of which require less fossil fuel use, particularly coal, and more renewables. The government is gradually transitioning its support to favour renewables—but more could be done. With the introduction of the Good and Services Tax [GST], it isn’t clear how some fossil fuel subsidies will go up or down, and there is still a very incomplete picture of state-level subsidies. To make informed decisions, policy-makers need ongoing transparency on these issues,” said Vibhuti Garg, Associate, IISD

The report reveals that India has been steadily increasing central government subsidies on electricity transmission and distribution, while reducing subsidies on oil and gas over the last three years. Central government subsidies for electricity transmission and distribution increased from INR 40,331 crore (USD 6.7 billion) in 2014 to INR 64,896 crores (USD 9.9 billion). In 2016, transmission and distribution became the main recipient of energy subsidies in India. These sums do not include the even larger volume of state government subsidies that have been provided through the government’s UDAY program, which provided an additional INR 170,000 crore (USD 25 billion) over 2016 and 2017. The total subsidies to coal mining and coal-fired electricity have remained stable to a slight decline over the reviewed years and amounted to INR 14,979 crore (USD 2.3 billion) in 2016. Changes in tax subsidies due to the introduction of the  GST make it difficult to ascertain if coal subsidies will go up or down in 2017. Subsidies to renewables have significantly increased from INR 2,607 crore (USD 431 million) in FY2014 to INR 9,310 crore (USD 1.4 billion) in FY2016.

As a member of the G­20, India committed in 2009 to “phase out inefficient fossil fuel subsidies that encourage wasteful consumption while providing targeted support for the poorest.”  Overall, the scale of support to fossil fuels (coal, oil and gas) has remained more significant than subsidies to renewables through the entire reviewed period.

“Though there have been significant positive changes in terms of a decline in India’s subsidies to oil and gas consumption, there is still very limited transparency in terms of subsidies provided to the energy sector. The scale of several subsidies could not be determined due to gaps in government reporting. More information on subsidies is critical for ensuring subsidies are aligned with wider government objectives. Reallocating the balance of government support to sustainable energy, or other priorities like health and education, may be better able to serve people’s interests,” said co-author Shelagh Whitley, Head of Programme - Climate and Energy ProgrammeODI.

Garg added: “China and Indonesia, India’s largest peers in Asia and fellow members of the G20, have both opted for self-reports and peer reviews of fossil fuel subsidies. More countries are expected to announce reviews in the coming months, and many others will be encouraged to start reporting fossil-fuel subsidies under the Sustainable Development Goals. This is a good opportunity for India to provide leadership with a voluntary self-report or a peer- review that can help to address its domestic policy-making needs with the help of the international best practices.” 

In 2016, INR 28,500 crore was collected through the Clean Environment Cess, a tax on coal whose revenues are allocated to a clean energy fund. Yet only INR 9,310 crore was utilized for clean energy development. In the same year, India incurred an expenditure of INR 14,990 crore to coal subsidies. Such subsidies have ramifications for the markets, society and the environment. As per a recent report in The Lancet medical journal, outdoor air pollution caused more than a million premature deaths in India in 2016.

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About the International Institute for Sustainable Development

The International Institute for Sustainable Development (IISD) is an independent think tank that delivers the knowledge to act. Our mission is to promote human development and environmental sustainability. Our big-picture view allows us to address the root causes of some of the greatest challenges facing our planet today – ecological destruction, social exclusion, unfair laws and economic and social rules, a changing climate. With offices in Winnipeg, Geneva, Ottawa, Toronto and New York, our work impacts lives in nearly 100 countries.

For more information, please contact: Sumeep Bath at sbath@iisd.ca or +1 (204) 958 7700 ext. 740