India’s vibrant industrial sector, often referred to as India Inc, has demonstrated remarkable progress in enhancing energy efficiency over the past half-decade. This significant achievement, driven by a confluence of technological advancements, policy incentives, and a strategic shift in industrial processes, has seen businesses consume less energy per unit of output. However, this domestic success story unfolds against a backdrop of persistent global energy volatility, with recent geopolitical conflicts in Eastern Europe and the Middle East starkly exposing the nation’s enduring vulnerabilities in energy security. The gains in efficiency, while laudable, may prove ephemeral without an accelerated and comprehensive transition towards a more diversified, cleaner, and domestically resilient energy mix.
An extensive analysis of financial data encompassing over 3,600 non-financial entities reveals a clear trend: India Inc has significantly reduced its exposure to fluctuating fuel costs since the initial shockwaves of the 2022 Russia-Ukraine conflict. At the onset of that conflict, when Brent crude briefly soared towards $140 a barrel and global natural gas and coal prices escalated dramatically, power and fuel expenses for these companies climbed from approximately 2% of both net sales and total expenditure in early 2022 to nearly 2.5% by mid-2022. For the manufacturing sector, this burden was even heavier, peaking at around 3%. Yet, in the subsequent period, these costs have shown a steady decline. By early 2024, they had retreated to roughly 1.5% of both measures across the broader corporate landscape, with manufacturing firms managing to lower their energy burden to about 1.7% – a substantial reduction from the 2022 peak and even below the pre-pandemic average of 2.2%.
This impressive improvement can be attributed to several factors. The increasing adoption of cheaper renewable power sources, including the proliferation of captive renewable plants and the procurement of green energy through open-access mechanisms, has played a pivotal role. Simultaneously, enhanced domestic coal production has bolstered the stability of electricity supply, while widespread implementation of better process efficiency within industrial operations has reduced overall energy consumption. Furthermore, the Indian economy’s gradual shift towards higher value-added manufacturing and a burgeoning services sector, which typically possess lower energy intensity, has also contributed to this decoupling of economic growth from energy demand. Manas Majumdar, a partner and leader in oil and gas at a major consulting firm, notes that these combined changes have enabled the economy to generate significantly more Gross Domestic Product (GDP) for every unit of energy consumed than it did a decade ago, signalling a structural improvement in energy productivity.
Policy mechanisms have also played a crucial, albeit sometimes conservative, role in driving this efficiency drive. The Perform, Achieve and Trade (PAT) program, overseen by the Bureau of Energy Efficiency, mandates energy-intensive industries to meet specific efficiency targets. Companies exceeding these benchmarks can trade Energy Saving Certificates (ESCs) with those falling short, creating a market-based incentive for energy conservation. However, experts like Vibhuti Garg, Director for South Asia at a prominent energy economics think tank, suggest that the initial PAT targets were deliberately modest to encourage broad participation. While this approach successfully brought industries into the dialogue around energy efficiency, it may not have provided sufficient impetus for deeper, transformative investments in low-carbon technologies. Similarly, the benchmarks under India’s nascent Carbon Credit Trading Scheme (CCTS) also remain relatively conservative. For the nation to truly incentivize profound efficiency improvements and a faster shift away from fossil fuels, progressively tighter performance thresholds, coupled with stronger carbon prices backed by effective price floors and ceilings, will be essential. Without such robust market signals, the substantial capital required for next-generation decarbonization technologies will remain a formidable barrier.
The gains in energy efficiency, however, have not been uniform across all industrial sectors, revealing a complex and uneven transition. The construction materials industry, particularly cement, stands out as one of the most challenged segments. Post-pandemic, power and fuel costs for this sector escalated to approximately 16-17% of both sales and total expenditure, surpassing pre-2020 levels of around 15%. The recent global energy shocks have exacerbated this pressure, pushing energy costs up further in early 2024. In the cement segment, which is crucial for India’s infrastructure growth, power and fuel costs now constitute nearly a quarter of both sales and expenditure. This high burden is largely due to the inherently energy-intensive nature of clinker manufacturing, a core component of cement production that requires kilns operating at extremely high temperatures, making producers heavily reliant on coal and petcoke. Decarbonizing cement production demands significant capital investment in advanced technologies such as carbon capture, utilization, and storage (CCUS) or alternative fuels. In a fiercely competitive market characterized by largely commoditized products, recovering such investments by passing on higher prices to consumers remains a significant hurdle.
In stark contrast, the fertilizer sector presents a different picture of energy stability. Here, power and fuel expenses have remained relatively consistent at around 11% of both net sales and total expenditure in the post-pandemic era, slightly lower than pre-COVID levels. This stability is largely attributable to strategic policy interventions, including administered urea prices, gas pooling mechanisms that average out gas procurement costs, and substantial subsidy support. These measures have effectively insulated fertilizer producers from the extreme volatility of global gas prices, ensuring the availability of essential agricultural inputs. While this policy support has been critical for India’s food security, experts caution that the resulting fiscal burden on the government may become increasingly difficult to sustain in the long run, necessitating a re-evaluation of long-term subsidy strategies and a push for indigenous, greener fertilizer production methods.
Meanwhile, the steel industry offers a compelling example of how competitive pressures and evolving global regulations can drive significant energy intensity reductions. Facing intense international competition and the impending implications of carbon border adjustment mechanisms, such as the EU’s CBAM, Indian steel producers have proactively invested in advanced technologies. These include waste-heat recovery systems, enhanced automation, increased utilization of scrap metal, and a shift towards electric arc furnaces (EAFs) over traditional blast furnaces. As a result, the steel sector has nearly halved its structural energy burden, with power and fuel costs stabilizing at approximately 3% of net sales and total expenditure in recent years, down from pre-2020 averages of 5.5%. This demonstrates a clear path for other energy-intensive sectors to follow, driven by both economic and regulatory imperatives.
Despite these efficiency gains and sectoral adaptations, the persistent global energy volatility continues to underscore India’s deep-seated energy security challenges. The recent West Asia conflict, while not pushing crude prices to the same peaks as 2022, has maintained them at elevated levels, significantly above pre-conflict benchmarks. This sustained pressure on energy markets, particularly for natural gas, has disproportionately impacted energy-intensive Micro, Small, and Medium Enterprise (MSME) clusters, such as ceramics and textiles. Many units in these sectors, unable to absorb soaring fuel costs, have been forced to cut production, operate below capacity, or even temporarily shut down, leading to economic disruption and job losses. India’s heavy reliance on crude oil imports, hovering around 85% of its consumption, means global price fluctuations inevitably translate into domestic economic strain.
This vulnerability is accelerating India’s industrial energy transition, pushing manufacturers to electrify industrial processes wherever technically and economically feasible. There’s a growing trend towards expanding captive renewable plants, increasing procurement through open-access renewable channels, and securing long-term power purchase agreements (PPAs) to de-risk against volatile fossil fuel markets. However, the path to energy security through renewables is not without its own complexities. Intermittent sources like solar and wind inherently require massive investments in large-scale battery storage solutions, robust transmission networks, and sophisticated flexible grid management systems to ensure reliable and consistent power supply. The speed at which India can scale these critical infrastructure components, along with deepening its carbon markets and fostering a strong domestic clean-energy manufacturing ecosystem for components like solar cells, batteries, and electrolyzers, will ultimately determine whether the recent efficiency gains translate into enduring energy resilience in an increasingly volatile geopolitical landscape. India’s journey towards a sustainable and secure energy future demands not just technological innovation and corporate initiative, but also strategic policy foresight and significant infrastructure investment to navigate the complex interplay of economic growth, energy demand, and global uncertainties.
