by Vinod Rai
As a result India’s per capita energy consumption even in 2016 is 670 kgoe (kilogram of oil equivalent—the normalized unit to measure energy usage) while that of electricity consumption is 1075 kilowatt-hour (kWh) per year.3 Both are just a third of the world average.
Still the solar signature on the CIL tower and the coal (pun intended) calculations demonstrate a welcome but pragmatic move towards fulfilling the energy needs of the Indian economy. Post 1947, Indian policymakers rarely ventured into such forward-looking agenda for a long time. The agenda, when it was formulated, hugged ministries instead of looking at the broad picture, and so made sporadic progress. Since growth in energy consumption has an almost one-to-one connection with the growth rate of GDP, the piecemeal agenda stalled the growth of the economy. As the stakes rose, the economy instead got into more than one political crisis.4 There were several of those arising from energy management policies. The first occurred in December 1954 when the government introduced the phrase ‘socialistic pattern of society’ in its Industrial Policy Resolution. Industry was stunned. Ministers led by finance minister C.D. Deshmukh used every possible pulpit to assuage their fears. Yet ‘every established industry ran to extract a promise from the government that doomsday was not around the corner for them. The move to nationalize J.R.D. Tata’s Telco was scrapped, and the banks led by A.D. Shroff, cement by the Kotharis and jute by the Birlas got a reprieve. Coal did not . . . India had committed a fatal mistake. The energy economy was left to wobble with no promise of adequate government investment and none from the private sector to make up the slack.’5
Energy by Pieces
It would seem surprising today but the omission to count energy as an element of national five year plans sat well with the circumstances in which India won her Independence. The first half of the twentieth century saw a massive struggle between the European powers to wrest control over oil resources across the globe. Among the many reasons the Axis Powers lost the Second World War was the efficiency with which the Allied Powers cut off their access to oil, in Africa, with the Atlantic blockade and the relentless bombing of the refineries in Germany. Transport economics had moved clearly to a dependence on oil as the fuel of choice. Coal was relegated to light up the cities and villages but its role as a means of transport was over.
As Independence arrived in India, its political leaders studied these developments. They also noticed that in comparison with its needs, the country was energy starved. India accounts for 17 per cent of the world’s population but has only 0.6 per cent, 0.4 per cent and 7 per cent of the world’s oil, gas and coal reserves respectively.6 This meant the country had to depend heavily on imports even when the level of energy consumption was low by global standards. But with the memory of the two world wars vivid in their minds, the policymakers were also clear that India would not begin a fresh rush to colonize offshore sources to secure a reliable source of energy. This was a huge affirmation of faith in the emerging geopolitical order. It disregarded history that showed that rights over fuel had rarely led to good feelings among nations. Post the spread of the Industrial Revolution, the demands for fuel security made nations that had ambitions to grow fast become eager hunters for sources of energy. India’s first government under Prime Minister Jawaharlal Nehru, including the newly set up Planning Commission, instead banked more on faith than a thought-through strategy to mine its coal reserves more aggressively—but only by the state—and import oil from the Middle Eastern countries, demonstrating the use of peaceful coexistence.
Both these plans were put in a compromising situation by unanticipated developments, chiefly among them the rise in prices of imported crude oil and the repeated crises in the Middle East. The external markets for coal were meanwhile allowed to go dry without anyone taking a conscious decision to do so. The economy had a flourishing trade in coal before Independence, where plenty of British managing agencies, such as Andrew Yule, competed with Indian interests represented by Gujarati and even Parsi agents. Earlier in the nineteenth century, there were even Bengali companies of whom Dwarakanath Tagore with his Carr–Tagore company was the biggest.
All of them were snuffed out or put on notice once India decided that eventually all coal and oil business had to be nationalized. Investments from the private sector naturally began to dry up but the state had little fiscal space to replace them. So it never got clear how New Delhi would, if at all, steer a higher production of coal and oil. For instance, P.C. Mahalanobis, the Indian government’s first statistical adviser and author of the Second Five Year Plan, argued that it made no sense to fill up the ballast of the railway engines with coal to then lug more coal by wagons across the country to fuel other industries.7 Imported oil could do the work better. The man who could secure the oil security for India was Gamal Abdel Nasser, the president of Egypt from 1956 to 1970. Nasser and Nehru came famously close but only politically. Egypt had hardly any oil to sell and Nasser was not exactly popular with the oil sheikhs of Saudi Arabia, Oman or Kuwait, especially after he began nationalizing foreign oil companies. There was another little hitch. Egypt’s staple export was cotton; India also produced cotton. Neither needed the other’s products.
The emergence of Cold War in the Middle East left India with very few options to source crude oil at cheap prices. While the Suez Blockade and the Six Day War had a relatively minor impact, India was badly hurt by the sharp spike in prices from the successive oil shocks of the early seventies.8
The Middle Eastern nations made no allowance for India’s needs and limited foreign exchange reserves to pay for the high prices. This was a let-down. Nehru had been sure that he would not only get oil, but he would get it at the same price that the UK got it for. After all, Mumbai and London were roughly the same distance from Abadan in Iran. When international oil companies, such as Burmah Oil, raised the price of Indian petrol by an anna9 in 1957, Nehru described it as ‘loot’ and speeded up the construction of a state-run oil refinery at Barauni in Bihar. Before the revision, the price of a gallon of oil imported from the Middle East by India cost just six pence more than the cost in the UK. A couple of years later in May 1960, the prime minister ran to Ankleshwar in Gujarat when India struck its first oil well beyond Assam. As he stood beaming at the site, a gusher began spouting oil, spraying some on him too. Even as the engineers ran to switch it off, Nehru said: ‘I shall address the Parliament in this sherwani. Let everybody know that we now have our own oil.’ He named the well ‘Vasundhara’.
These were naive expectations and, worse, piecemeal. Naturally, there were a series of hits and misses. By the early sixties, India had set up its state-owned exploration company, the Oil and Natural Gas Corporation Limited (ONGC). Its first chairman K.D. Malaviya, notched up a big success when Iran offered it four offshore exploration blocks. India formed a joint venture with ENI and Phillips Petroleum to explore them and found oil in two of them, ‘Rostum’ and ‘Raksh’; the oil was imported to Cochin. But soon thereafter, India was forced to surrender those two blocks in 1979 when the Shah of Iran was deposed. A decade later, ONGC set up its subsidiary—ONGC Videsh Limited (OVL)—in 1989 to prospect for oil abroad. But, of course, it did not have the balance sheet to purchase anything worthwhile for a long time.
India’s major success in prospecting for domestic oil was the discovery of an offshore oilfield near the coast of Mumbai that came into operation in 1974. The field was discovered by a joint Russian and Indian team.10 Bombay High, the over-forty-year field, has been India’s oil mainstay but production has clearly plateaued. In the last ten years till 2015–16, oil production from all domestic sources rose by only 15 per cent while consumption of petroleum products has increased by 62 per cent. It is rather curious that India bade goodbye to the US-dominated oil companies in the seventies, again through nationalization of their Indian assets, but ended up hugging oil oligarchs of Russia post-2000. The OVL’s success has been patchy with Rosneft, or with Venezuela, managing to generate equity returns but no oil supply was se
cured for imports back home.
While oil prospecting rarely gave a cheer, India could have considered itself lucky that it had a considerable amount of coal as reserves. The Indian Coalfields Report of 1946 authored by K.C. Mahindra introduced seminal changes in the regulations for the coal sector. It formed the bedrock of the Industrial Policy Resolution of 1946 made by Shyama Prasad Mukherjee as the industry minister. Under the Policy, the government made it clear that coal mines would be nationalized eventually. Not only did coal miners stop fresh investments in the sector, the broader industrial lobby too was not happy. By the time the Industrial Policy Resolution of 1956 came around with the understanding that the mines would be nationalized soon, the price of coal had risen and that disturbed the earnings of the Indian Railways. This was a huge fiscal challenge for the government.
The coal industry and the railways played a tug-of-war game in the sixties that only made the coal prices rise. There was a downstream impact too. Coal had become the fuel of choice for urban Indian homes and its price rise hurt both domestic budgets and prospects for the re-election of candidates. The government had to move fast. It used the plea that the conditions of the coal workers were too dismal to nationalize the mines. Coal India Limited was formed in 1975. This galvanized mining as the CIL pushed additional investments to extract more coal. But as it had no control over the evacuation of coal to the power plants, due to the shortage of wagons and lines, the conditions did not really improve. Pricing reforms, being encouraged in several sectors in the eighties, were not considered for energy goods.11 One of those reforms was to erase a policy of freight equalization that allowed a tonne of coal to be priced the same across the country, irrespective of transport costs. It was introduced in 1952, but hardly served to encourage dispersal of industry. Because of the shortage of railway wagons, it was a dead letter.
This impacted the post-nineties economy that showed spurts of growth. Those spurts were hemmed in by crippling power shortages due to the lack of coal. A way out was offered by the then West Bengal chief minister Jyoti Basu, who advised Prime Minister P.V. Narasimha Rao that some coal mines could be offered to companies bypassing CIL, provided they made the requisite investment in building power or steel plants. With the support of the politically powerful communist parties, the government pushed through amendments to the Coal Mines (Nationalization) Act. The response from the industry, initially a trickle, became a flood as China created a global revival for commodities post the Asian financial crisis of 1997. By 1999, there was a rush for mines where several dubious business groups jumped in. From there, it was a short walk to the biggest energy crisis—the coal scam—laid bare by the national auditor’s report on the sector in 2012.
Clearly, the rules to keep the private sector out of mining had hurt both oil and gas, as well as coal. After Bombay High, exploration of new areas for oil lagged for decades till new companies were allowed to enter after liberalization in 1991. Even now of India’s nearly 3.17 million square km of sedimentary area, only 19 per cent has been somewhat explored for oil and gas.12 But the scale of disaster in coal was much larger. The state went back on its policy to keep mining entirely to government-run companies, CIL and SECL, without making the changes explicit.
The compromise meant trouble. Prime Minister Manmohan Singh was convinced that new mines should be auctioned, but was equally convinced that the Parliament would not endorse it. By 2012 the effect of this policy paralysis was clear. The auditor noted that the government had suffered a potential loss of Rs 28 billion (USD 0.44 million) in handing out those mines without inviting auctions.13 The finding was instrumental, among other things, in forcing the Manmohan Singh-led UPA government out of office and has kept the next NDA government on tenterhooks about selling any natural resource without auctions. The collateral damage from this policy is that the mines bought in auctions are now economically unviable as coal prices have crashed globally. Since Indian coal is inferior, the incentive to import has risen.
Energy Enterprise
After those hits and misses, India has finally arrived at a plan for energy security that incorporates environmental challenges with the need to keep coal fires burning. It does not envisage a large-scale switchover to gas instead of coal, though the latter has far more carbon footprint, because it would mean a massive spike in imports. Till 2027, the Central Electricity Authority (CEA) has projected no addition to the existing gas grid ‘in view of an acute natural gas shortage in the country’.14
The government also claims, and quite reasonably, that India is now making a transition from a power deficit to a power surplus scenario. It has begun to export power to neighbouring countries. Also, because of the size of its economy, Indian demand influences international price trends for coal, oil and gas, though ‘macroeconomic development and policies in China shape coal demand and supply, with implications elsewhere’.15 China accounts for almost 50 per cent of the global coal demand, 45 per cent of coal production and more than 10 per cent of seaborne trade. Therefore, economic or policy changes in China affect the coal market.
For India, energy pricing matters because first of all it needs to make its citizens consume more energy. Of the 304 million people who do not get electricity, it is essential they do so to ensure the state can reach them digitally to supply cash subsidy, education and healthcare. All government agencies have pencilled in a higher growth rate for energy consumption than the trend rate for the past decade. That can only happen if the prices stay flat. Happily, both oil and coal prices have begun to soften as IEA reports show. Though it creates risk that this will cut global oil discoveries that have fallen to a ‘record low in 2016 as companies continued to cut spending and conventional oil projects sanctioned were at the lowest level in more than seventy years’.16 India has begun to see the impact of this slowdown as no companies have bid in response to its open average policy for oil and gas.
The other two arms of India’s energy matrix are sustainability and economic growth. These four do not move in tandem. Low fossil fuel prices make them an affordable option, even when imported, if renewable energy prices do not fall as much. In India, even a minor difference in prices could create a long tail risk. For instance, several states have opened bids for solar power projects where companies have aggressively lowered prices in each round. The cash-strapped state electricity distribution companies suddenly find that bids made in late 2016 are several notches higher than the latest bids made in June 2017 and have asked the earlier companies to renegotiate. Rewriting contractual obligations by the buyers is a risky option reminiscent of what happened in the coal sector in its heyday. India has committed to develop 175 GW of renewable power by 2022, which means there is no need to build additional coal-based power stations beyond what has already come on steam by 2015. Alarmingly, CEA projections show, despite the sufficiency, another 50,025 MW of coal-based power capacity is already under construction. These projects can be made use of only after 2022 and have already sunk over Rs 40 billion of bank loans.17 They are the new stress points for the economy. As it is in the past decade, India has ramped up on about 80 GW of coal capacity just when the global appetite for renewables is rising fast.
Harnessing the potential of renewables also demands developing corresponding hydro- and gas-based power plants. Hydro power has just not taken off in India (8.16 per cent by 2022). Compared with the expected global average of 25 per cent share of gas in the energy mix (by 2035), India will only reach 9 per cent by 2040.18 Without these balances, it is difficult to envisage how renewables will deliver in India. Globally in 2016, renewables supplied more than half the global electricity demand growth, with hydro accounting for half of that share.
Clearly the Indian energy story has suffered from insufficient attention paid in the past to develop robust institutions, optimal pricing and the enforcement of regulations. As the contours of the new policy focus more on correcting these issues, they face a world order impatient with tinkering around with the past errors. India has a
dded more than 10 GW of renewable energy in just one year. The asking rate, however, has gotten stiffer, which the solar panels on the CIL tower cannot hope to cover only through optics.
XIX
Democracy’s Angry Crowds: Civil Society and Legitimacy in India
Subrata K. Mitra
Though democratic states derive their legitimacy from popular support, the relationship of civil society and democracy is not as straightforward as it might appear at first sight. After all, most democratic states are run by elected representatives, and public institutions do not necessarily provide much scope for the populace to play a role in their functioning. The same applies to the formulation and implementation of public policy. This is the crux of the question that Larry Diamond asks in his seminal contribution to the relationship of civil society and democracy: ‘Is it primarily the elite who make, shape and consolidate democracy? Or, does the public matter?’1 Drawing on recent Indian examples, one can add a further twist to this general question. How about the ‘wrong’ kind of public—lynch mobs and fanatic mobs—asserting their collective might to confront public authority, trying to protect minority rights?2