India's energy posture looks good -- on first glance
Judging from statistics alone, India is more fortunate than the majority of the oil-importing developing countries. Imported oil accounts for only 12 percent of its energy consumption.
But this figures is misleading. The needs that are met by oil are precisely the ones that cannot be met by any other source of energy. The pattern of consumption of commercial energy is markedly different in India from what it is in the advanced countries. In the latter, nearly two-fifths of all energy is used by consumers; the figure for India is just 7 percent.
While fuel oil is the major fuel component in the rich nations, in India the major fuels are diesel and naphtha - the one to power locomotives, trucks, irrigation pumps, and tractors; the other for the production of fertilizers.
The transport sector accounts for fully 55 percent of the total consumption of oil; agriculture for 14 percent. Another 10 percent is consumed as naphtha and fuel oil for the fertilizer plants. In other words, four-fifths of the total consumption of oil and oil products takes place in sectors whose growth is vital to further development of the economy.
Therefore for India, as for other oil-importing countries in the tropics, cutting back oil consumption is possible only if the goals of modernization and economic development are given up.
This is why, in the nearly nine years since the first sharp increase in oil prices, the Indian government has concentrated its efforts on discovering more oil within the country and on finding the foreign exchange with which to pay its oil bills, expending virtually no effort to cut domestic consumption.
As a result the total consumption of oil and oil products has increased from 24.7 million metric tons in fiscal 1975-76 to 35.4 million tons in 1980-81. In this period, imports increased by a full 50 percent - from 16.2 million tons to 24.9 million tons. What is more, a planning commission study shows that, if present trends continue, the consumption of oil will hit 93 million tons by the turn of the century.
The study concludes that this simply cannot be allowed to happen and that measures must be made to conserve energy and to switch to alternative energy sources.
In the meantime, the country has weathered the oil shocks of 1973 and 1979-80 rather well. The first came the year after India had achieved a trade surplus for the first time since gaining independence. The quadrupling of oil prices pushed the country's oil bill up from a mere 9 percent of its exports in 1970-71 to 35 percent in 1974-75. The Indian trade balance swung from a surplus of 1.03 billion rupees (about $100 million) in 1972-73 to a deficit of 11.9 billion rupees (about $1.2 billion) in 1974-75.
But thanks to a policy of substituting domestic products for imports, followed relentlessly by the government since the early 1950s, India had built up a diversified industrial structure that enabled it to withstand the 1973 oil shock with amazing ease. Since at least half the country's exports were of industrial commodities, it benefited to some extent from the rise in the world prices that occurred in 1974. In addition, the country was able to cut down its nonoil imports still further and to step up the export of items like sugar, rice , and fish products. As a result, by January 1976 exports once again exceeded imports.
In one way, the first rise in oil prices actually conferred a bonanza on the country. In the four years after 1973, over a million Indians found jobs in the oil-rich Middle East, and began sending most of their earnings back to relatives in India.
Coming on top of a balanced trade account, this led to a rapid accumulation of foreign-exchange resources just when the rest of the oil-importing, developing countries were sinking steadily deeper into the red. And spurred by the rising reserves, the government decided to take the bold step in 1978 of allowing more imports of machinery, spare parts, and industrial raw materials so that industry could increase production and raise exports even further.
As for domestic production, this strategy has been fairly successful. But any hope of further improving the balance-of-payments position by increasing exports was dashed by the second oil shock of 1979-80, which pushed oil prices for India up from an average of $12 a barrel to $37 a barrel in just over a year. As a result, despite a continuing inflow of remittances from Indians working abroad, the payments deficit touched $2 billion in fiscal 1980-81 and 1981-82.
Since last year the government has concentrated on increasing the domestic production of oil, but India's oil and gas reserves are slim. Domestic oil can therefore at best provide a 25-year cushion in which to find alternative sources of energy for the growing transport and fertilizer industries.
The main alternative is coal. The country has total estimated reserves of 80 billion tons of coal, of which 24 billion tons are proven. The government aims to base most of its future power generation programs on coal. It is setting up four coal-fired, super thermal plants generating 2,000 megawatts each, and there are plans to set up five more during the present decade.