As most of you know already, India is one of those countries that consumes more energy than it produces currently. In spite of having one of the largest reserves of coal in the world, the hunger that our nation has for energy cannot be satiated by just this form of energy indefinitely. This has compelled us to take respite in our middle-eastern neighbors who supply fuel to us at highly cartelized rates. This causes any sensitive event happening in their region to cause a ripple effect on oil prices, global stock exchanges and the global economy at large. India is one such victim.
A very visible effect of this energy dependency has been in the form of rising inflation in our country. Fuel prices have gone up by approximately 80% in the last 3 years, leading to higher costs in travel and transportation. Supply of even the most basic necessities and raw materials gets proportionally dearer, leading to higher cost of manufacturing and delivery of processed goods, e.g. the FMCG segment.
Mind you, this kind of inflation has got nothing to do with the amount of liquidity that is currently floating in the current Indian economy. Government cannot tackle this inflation by increasing repo rates / interest rates ... this will simply stifle the people more than they already are.
Take an analogy of diamonds. Assume that only 1 million diamonds are available in an exchange for purchase. The exchange has the right to change the price of diamonds as per the availability of raw diamonds in its reserves, or for other undisclosed reasons. As the number of diamonds decreases, the price of each remaining diamond would be greater than before. Even though people have an indefinite amount of money, they can't do much if there are no diamonds to purchase. Do you solve this problem of increasing diamond prices by supplying more diamonds to the exchange or controlling the amount of pocket money that people have thinking that this a simple demand-supply scenario ?
Even the Planning Commission has admitted to this fact that inflation has multiple aspects and these kind of inflationary components cannot be controlled by economic policy changes. So how we tackle this ?
The answer to this problem is energy insurance. This can be achieved by a stronger commitment towards setting up of alternative energy sources and an aggressive energy generation policy. The government of India already has aggressive electrification plans especially in the rural areas. They need to change their game plan just a little bit - instead of setting up end-to-end power generation stations, set up electrical energy grids that can be fed by different kind of energy sources - renewable (sun, biomass, wind, water) and non-renewable (coal, nuclear). Having a strongly connected, national-level electrical grid provides an excellent opportunity of energy farmers at the individual / mass level to provide their contributions and earn handsome rewards. At the same time, the government needs to ease its worries about energy generation and rather focus on energy procurement from such sources.
Energy farms with alternative energy sources is a new and fast-catching on trend, globally.
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In the case of solar energy, the idea is to install arrays of solar panels over large spaces having easy access to sunlight. This has tremendous potential to generate enough energy not only to be consumed in the real-time but also to be stored and consumed at a later hour.
Governments can encourage such energy farms by allowing easy purchase, manufacturing and / or import of solar farming equipment. As with any new technology, the cost of utilisation comes down dramatically with mass production and consumption. If the government takes proper steps to get the ball rolling and attain critical mass for such projects, we will be looking at energy independence by the end of the decade !
Looking at the concept of inflation in terms of the bigger picture of the global economic depression looming upon over the last 4 years, India can say it has something to be proud of. The higher savings rates of Indians and stricter loan provisioning policies of Indian banks not only sailed us through the tough times in 2008-09 but also forced other global banks to take lessons from us. If India performs steps as explained above to tackle its economic challenges, it will be termed as anther radical and bold example set by us for the world to follow.
However, we need to act upon this while the window of opportunity is still open. High inflation can even topple governments - unless we want the common man loses it after buying 1 kg of onions for Rs. 200, we must lay the necessary groundwork for the new energy-independent economy.
5 comments:
Nice article Kotesh. Inflation indeed has multiple dimensions. The gradual integration of Indian economy to the global economy has ensured that India is not untouched by the ripple effects of global food price rise (and yet the farmers donot benefit from the rise). Another factor is surging rural demand thanks to MGNREGA which has forced the labour wages up in addition to the additional >50K cash with the rural people.
The innovative idea of solar farms is indeed a noble one and should be pursued with greater focus towards the future. The cost of solar technology still outweighs its non-renewable counterparts. One measure government could pursue is to subsidize solar technology rather than subsidizing kerosene. Another could be promoting building codes that have provision for solar farms and water harvesting. Self-sufficiency is indeed the way forward.
good inputs nikhil :)
Hi,
1. India's immediate energy needs are immense. We should realize that all alternative forms of energy-nuclear/solar (however cheap (in long run)/environment friendly they may be), cannot satisfy our short term energy needs (because of uncertain technology, the long period of consensus building in India (in case of nuclear energy). This leaves with only 1 feasible option- which is thermal power. The technology is proven, risks are minimal and efficient technologies like super critical etc are coming up. In fact even the hydro power projects went into disarray because of super activism shown by NGOs.
2. The government has taken cues and big time investments in solar energy has been mandated in the 12th plan.It seems the policy is more or less on track in the power sector.
Rohan, it is correct that this is not feasible in the short-term, as setting up the necessary infrastructure will take a lot of time. We need to adopt a phased approach and provide necessary investments and infrastructure for solar power in a gradually increasing manner. We are talking about a multi-trillion dollar investment arena and there are countries that are following this phased model, successfully. Some examples are USA, Spain, Portugal and Japan. Portugal has already achieved 30% of its energy needs via solar power via an aggressive plan (since 2000) for harnessing solar power. Why should India not take cue from all this ?
Nice Analysis,dude.Adopting an energy mix is really the way forward for India which consists of a judicious blend of renewable and nonrenewable sources.This is so because setting up of the infrastructure for non renewable resources such as solar energy and making it economical would be a time taking process..untill that thermal,nuclear power plants could cater to our needs.
The government has already launched the solar mission in this regard.But a mere policy is not the answer,an aggressive and timely implementation will only help us reap he true benefits of renewable sources of energy.
With the economy expanding and growng at a fast pace i agree that inflation cannot only be tackled by short term measures.Supply side constraints need to be adressed.Agriculture and energy are two areas very important in this regard.There are multiple factors effecting these sectors adversely,which in turn is fuelling inflation.
The idea of solar farms is indeed a good one and would reap benefits if integrated and implemented in the future.Mass awareness of the benefits of such a use and a self sufficient approach would help us address most of our problems,let alone energy security.
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