How clean energy can drive India’s economic growth

India, the world’s third largest economy, is poised to become the engine of global economic growth. India is one of the largest consumer markets, which has brought and continues to bring the much-needed investments across sectors and is, in turn, providing world-class products, services and employment opportunities. The new government has a positive, business-friendly approach and it determined to revive the economy. Prime Minister Narendra Modi has undertaken aggressive steps towards building confidence among foreign investors.

Since the government has a strong parliamentary majority, it is now able to take strong policy decisions. In the past year, it has launched a “Make in India” campaign to boost domestic manufacturing. India registered a 26% increase in foreign direct investments in 2014-15 as compared to the previous year. It received $35 billion as FDI in 2014. Among other policy decisions, the federal government in India has introduced the Goods and Services Tax bill in parliament to reform the tax system and relaxed foreign direct investments in many critical sectors including defence and insurance.

In October this year, the World Bank predicted India’s economy would grow at 7.5% annually. India has enormous untapped growth potential, so much so that is could overtake China behind by 2028. Additionally, by 2035, India is projected to become the most populous country and the largest net consumer of power, energy and resources. Above all, it has the challenge of lifting 300 million people out of poverty. The federal government has set ambitious yet achievable targets for infrastructure, defence, power, urban development and agriculture. But this growth requires significant energy and resources.

Climate negotiators are therefore anxious that the third largest emitter of greenhouse gases may soon become the biggest polluter in the process of achieving its urgent economic goals. India is already the world’s second biggest consumer and second largest importer of thermal and coking coal. It spends around 30% of its foreign reserves on importing fossil fuels, a key cause of its high fiscal deficit. To regulate emissions from fossil-fuel based plants and boost the renewable energy sector, India introduced a carbon tax in 2010. The federal government doubled this tax in 2014, but this had little impact on its consumption and import. Most of India’s greenhouse emissions are caused by the country’s coal-fired plants.

India could find it difficult to meet its 40% emission reduction target by 2030 if it does not employ renewable resources to sustain high growth. Shifting to renewable energy will not only reduce India’s import dependency, but also reduce its alarming fiscal deficit. India has made a 40% renewable energy pledge in its intended nationally determined contributions (INDC) submission. The impetus is the 175 GW renewable capacity target the Indian government aims to achieve by 2022. Solar and wind energy will play a major role.

In 2015, the cost of solar power in India plummeted to Rs 4.63, one of the lowest in the world (which is less than 8 US cents per unit in 2015, compared to over 30 cents per unit in 2010), strengthening hopes that it is feasible to achieve the renewable goals. India is already the world’s fifth largest wind power producer and has just launched an offshore wind policy to explore wind potential across its 7,517 km coastline. Wind energy, too, is one of the cheapest sources of energy in India and accounts for about 9% in the total energy mix.

Considering the growth of the clean energy sector, the Economic Survey of India and Ministry of New and Renewable Energy projects India’s renewable energy industry will generate business opportunities worth $160 billion in the next five years and create over 50,000 jobs. This would also open up the sector for foreign investments, especially from China, Japan, Germany and the US, and encourages indigenous manufacturing of zero-emission components, which will create jobs and alleviate poverty in India.

India is in a historically significant position, and it can show that high yet sustainable growth is achievable. The best way of achieving this will be low-cost finance and access to cheap zero-emission technologies. But these clean energy targets need support from developed economies to facilitate a smooth journey towards a sustainable economic future.

The author is one of 78 signatories to an open letter from CEOs to world leaders urging climate action. 

Author: Vineet Mittal, Managing Director, Welspun Energy

Image: Workers carry a damaged photovoltaic panel inside a solar power plant in Gujarat, India, July 2, 2015. REUTERS/Amit Dave