India Austerity Energy Security Breaking Silos Government

The PM has issued a clarion call for energy austerity. This is timely because even when the Straits of Hormuz reopen, India will continue to face elevated energy prices and supply uncertainty. Worldwide, stocks of crude oil and petroleum products have been depleted. These will have to be replenished. Eight refineries in the Persian Gulf and Qatar’s Ras Laffan LNG terminal have been damaged.

This will keep the petroleum market tight. In addition, while a “no war-no peace” scenario (like the relationship between North Korea and South Korea, or the current ties between India and Pakistan) may continue indefinitely, India cannot discount the possibility of miscalculation, misadventure, and/or misunderstanding triggering a violent rupture.

The PM’s call does, however, raise several questions. Who, other than the PM, has the executive mandate within our administrative and institutional set-up to put flesh on his directive? Who will define the targets to be achieved? Who will highlight the cross-cutting linkages within the energy sector (petroleum, coal, renewables, power, nuclear) and between energy and other economic sectors (fertiliser, food, water, environment, semiconductors, heavy industry) to ensure a “whole-of-system” approach to the management, monitoring, and evaluation of energy policy and security?

The answer is no one. There is no individual or institution with executive authority over energy. Some years ago, I proposed that the government revert to the status quo ante of 1992 and establish a Ministry of Energy, with the Minister ranked alongside the Ministers of Defence, Home, Finance, and External Affairs as one of the senior-most members of the cabinet. I suggested that the current cabinet-level ministries of petroleum, coal, renewables, and power be subsumed under this ministry.

This suggestion had no takers, possibly because it was politically infeasible. With 23 political parties in the coalition government, all of whom had to be accommodated, a proposal that reduced the size of the cabinet was never likely to gain traction. Today, this is no longer a constraint. The proposal could therefore be brought back to the table. I would suggest that NITI Aayog be directed to lead a discussion on the subject.

That said, I recognise that administrative and institutional change is never easy. Powerful vested interests must be navigated. A second-best option would, therefore, be for the PM to create a “Department of Energy Resources and Security” (DERS) within the Prime Minister’s Office, headed by a cabinet-ranked official and staffed by a multidisciplinary cadre of skilled specialists. The purpose would be to supplement, not duplicate or dilute, the responsibilities of the existing energy-related ministries. They would continue “as is”. There would be no change to the present administrative structure.

Specifically, I would recommend that DERS be vested with executive responsibility for the following five functions.

First, to provide a platform for a “whole-of-system” integrated approach to energy policy planning, implementation, monitoring, and evaluation (à la the Chief of Defence Staff). Most importantly, it should identify, study, and evaluate intra-energy and energy-non-energy economic, social, and environmental linkages to ensure efficiency of use, supply resilience, competitiveness, and decarbonisation.

Second, to ensure symmetry of investment across the energy value chain (generation, transmission, storage, distribution). Currently, this requires coordination among multiple ministries at the Centre and between the Centre and states. Lack of symmetry results in avoidable economic loss. According to economist Swaminathan Aiyar, 4 GW of solar energy is stranded in Rajasthan alone because of inadequate evacuation capability. Third, to provide a platform for “India Energy Inc.” to leverage its market power to secure energy at competitive prices, attract risk capital for the development of indigenous energy resources, and forge multilateral and bilateral research and technology partnerships.

Fourth, to serve as the “Energy Ombudsman”. Currently, there are a plethora of energy regulators. All have well-defined roles and responsibilities, but there is overlap and, on occasion, contention. The ombudsman should streamline and standardise energy regulation, particularly in relation to strategic reserves, inter-state wheeling of power, EV charging infrastructure, battery technology, time-of-day pricing, and dispute resolution. It should create a database of energy regulations worldwide, establish a forum for information exchange and best practices, and supervise the development of regulatory talent.

Finally, DERS should serve as the nodal communication point for energy-related matters. Energy is a politically sensitive subject. The PM currently bears the mantle of educating the public on the macroeconomic and cross-cutting ramifications of energy. This responsibility should devolve to DERS.

In this context, the government should consider enacting an “Energy Responsibility and Security Act” that defines the roles and responsibilities of every citizen in securing energy atmanirbharta and sustainability, while laying out a roadmap towards these objectives. DERS should take the lead in preparing the first draft.

The ripple effects of the closure of the Straits of Hormuz bring to mind the response economists at the London School of Economics gave Queen Elizabeth when she asked how such a conglomeration of brilliant people had failed to anticipate the economic and financial crisis of 2008. They explained that while “everyone seemed to be doing their own job properly” and “on its own merit”, there was “no one who saw the whole picture” and appreciated that “while individual risks may rightly have been small”, the collective impact of these risks could trigger a systemic collapse.

This answer mirrors the problem of energy policy in India. Those involved with energy appreciate the nature of our energy challenge. They know what must be done. But because each of them has a mandate over only one component of energy policy, they lack a line of sight on the systemic consequences of seemingly “small” failures. This must change. We need to break silos and create a system that enables executive oversight over the totality of energy policy and security.

The writer is chairman and distinguished fellow of the Centre for Social and Economic Progress