Impact of the Energy Sector on India's Economic Growth

Impact of the Energy Sector on India's Economic Growth

Last updated: Apr, 2023
Impact of the Energy Sector on India's Economic Growth

In the fast-increasing world, energy consumption has already raised concerns over their excessive use of resources and subsequent environmental impacts. Being a developing nation, power consumption in India has been increasing at a greater pace. India’s energy sector is diversified compared to the rest of the world. Energy production in India is still dominated by conventional sources such as coal and water-based thermal power plants. It is being used up at an alarming rate all around the world, and India is no exception. India's most urgent problems are its expanding population and the resulting increased energy demand. It is the third-largest energy consumer in the world, behind the US and China. The energy segment of India aims to boost investment to achieve an efficient, sustainable, and clean energy system. There has been a focus on reducing the import of energy in India, relying on alternative sources of energy, and enhancement of domestic supply. In 2021, at global climate negotiations, the Indian government established a new commitment to reach net-zero greenhouse gas emissions by the year 2070. India also reaffirmed its aim to install 500 GW of non-fossil power capacity by 2030.

The growth of the energy sector was being challenged by the global COVID-19 pandemic which resulted in constrained economic activity. While the government initiatives like Jawaharlal Nehru National Solar Mission, rooftop scheme, solar park scheme, etc., have continuously supported the growth of the energy sector in India in terms of improved installed quantity of energy along with their equal distribution to maximize the reach. The total power consumption in India was 121.19 billion units in December 2022. Energy has become the most crucial factor in the survival of humans as well as the efficient running of machinery. The need has led to the consumption of energy at an alarming rate. To meet the excessive use of resources and safeguard those from extinction, the government of India is coming up with alternatives to the primary sources of energy. This will improve efficiency and sustainability in the use of energy resources.

In any economy, one of the most crucial factors is the energy sector as it has the ability and capability to ensure sustained economic growth and development. The progress in the well-being and prosperity of a nation is often linked to the growth of this sector. With all the benefits of this sector, India also focuses on addressing the challenges which emerge from time to time, e.g., ensuring safe, affordable, and continuous energy sources not only for the population but for industries as well, and assuring that the available sources sustainably meet the energy requirements to have a minimum long term negative impact.

Key Facts on India’s Energy Sector

  • India is among the top three nations in the world which are leading the global renewable energy growth
  • India ranks 3rd globally for total renewable power capacity additions
  • India is 3rd largest market in the world for new solar photovoltaic (PV) capacity
  • The primary energy consumption (mainly coal, oil, natural gas, and biomass) of India is the third largest in the world
  • India’s industrial segment has 42% of the share in total energy consumption (2022)
  • MSME sector can contribute approximately 20-25% of industrial energy consumption (2022)
  • As per the Bureau of Energy Efficiency (BEE), national strategy plan - the industrial sector has the highest (60%) energy-saving potential by 2030

Performance of the Energy Sector in India

India ranks 4th globally in renewable energy installed capacity including large hydro, wind power capacity, and solar power capacity. India has set an ambition to expand the capacity of renewable energy to 500 GW by 2030.

Although the COVID outbreak in 2020 led to a decline in the consumption of bioenergy and other renewable energy sources as compared to the previous year. However, as per the forecast, the Indian market for renewable energy is anticipated to exhibit a CAGR of 10.10% between 2022 and 2027. The growth is supported by various government policies, rising environmental concerns, incentives, and tax benefits for solar panel installations. There will be significant growth in the solar energy segment specifically during the forecast period, owing to the increasing number of investments in this sector. The Ministry of New and Renewable Energy (MNRE) has set a target to achieve 500 GW of renewable energy installed capacity by 2030. It is expected that this move will create growth and expansion opportunities for the market in the future. The growth will be boosted and supported by the initiatives of the government specifically the plans formulated by the Ministry of New & Renewable Energy (MNRE).