Relevance: GS-3: Indian Economy, mobilization of resources, changes in industrial policy and their effects on industrial growth.

Relevance: GS-2: Government policies and interventions for development in various sectors.

Key Phrases: current account deficit, imports of crude oil, Ukraine-Russia war, energy security, Energy Independent India by 2047, Electric vehicles, enhanced oil recovery, production sharing contract, exploration and production.

Why in News?

• Mandating the transport sector to shift to EVs will be a major step. The declining clean tech and battery costs should help in the transition.

Context:

• India imports nearly 84% of its crude oil requirement. Massive outflows of foreign currency has not only adversely impacted the country’s balance of trade, but also hurt its current account deficit.
• Government is making all efforts to reduce import dependence. India’s oil and oil equivalent gas import dependence in 2014-15 and 2015-16 were 68.9% and 72.2% respectively and during current April-January, 2020-21 is 77.1%.
• The year wise details of crude oil imported and details of imports of crude oil as percentage of total crude oil processing are as below:
• India imports nearly all the oil it needs, costing India about ₹2,000 crore every day. With the Ukraine-Russia war precipitating another oil crisis, sending price of oil shooting over $100 per barrel, it brings into forefront the fragility of India’s trade balance and overall energy security.
• With such heavy dependence on foreign oil, Prime Minister Narendra Modi’s clarion call for Energy Independent India by 2047 seems like a distant dream. However, a dramatic decline in clean technology costs have created new opportunities for India to nearly eliminate its oil dependency in the transport sector, which accounts for bulk of its oil demand.

Other Approach of Government

• For energy independence by 2047, near-to-medium term milestones need to be established. The government has already ratcheted up its ambition on a clean grid; oil use is the next big piece of the energy independence puzzle. Akin to the ambitious target of 500 GW of clean grid capacity by 2030, India could have a goal that all new vehicles sold by 2035 must use clean energy made in India, as a typical vehicle’s life is 15 years.
• That is, by 2035, all new cars, trucks and buses sold in India could be electric or use other clean energy such as biofuels or hydrogen. Ambitious as it may sound, this goal is in line with announcements from several global automakers (Ford, GM, Mercedes, Volvo, etc) of phasing out internal combustion engine (ICE) vehicle sales by 2035-40.
• Sales of electric 2Ws and 3Ws are increasing rapidly in the country, and, according to the Ministry of Road Transport and Highways, are expected to constitute 80 per cent of sales by 2030 in these vehicle categories. Nevertheless, to meaningfully reduce oil imports, focus should be on HDVs (trucks and buses) that account for over 60 per cent of oil used for transport.
• The good news is that due to dramatic improvements in battery technology, even heavy duty electric trucks are becoming commercially available in countries that are catalysing demand, with OEMs such as BYD, Volvo, Daimler, LionElectric, etc., offering several models. Electric passenger vehicles and HDVs need policy push for faster adoption due to higher upfront costs and the requirement of charging infrastructure within urban areas as well as along highways.
• India had announced its electric mobility intent with the National Electric Mobility Mission Plan (NEMMP) back in 2013, followed by subsidy allocation under Faster Adoption and Manufacturing of Electric (FAME) vehicles programmes. FAME-II provided an outlay of ₹10,000 crore in subsidies. EVs also enjoy considerable GST discount and income tax deduction.
• The government has announced significant incentives for domestic manufacturing of batteries and EVs. This is a welcome development for the auto-manufacturing industry, which contributes over 50 per cent to India’s manufacturing GDP. It would be crucial for India’s auto sector to maintain its competitiveness as the whole world shifts gears to clean mobility.
• All this needs to be complemented by a mandate that ensures that a certain share of vehicles sold in India use clean energy made in India. This will provide a strong signal to the industry to invest at the required pace, in manufacturing as well as charging infrastructure and ancillary services, by guaranteeing a domestic market.

Electric vehicles

• Electric vehicles (EVs) have much lower fuel costs as they are about three times more efficient than petrol or diesel vehicles and can use domestically produced electricity. They were prohibitively expensive until a few years ago, but the emerging reality is quite different given the dramatic decline in battery costs worldwide.
• While public transport and railways are the most efficient and sustainable modes of mobility, India is slated to see significant growth in the number of private, public and commercial vehicles on the road through 2050. In addition to doubling down on rail and public transport, electrification of vehicles holds the key to wean the transport sector away from reliance on fossil oil.
• Globally, sales of EVs have ramped up. There are now 12 million passenger EVs, over one million commercial EVs, and over 260 million electric two-wheelers (2Ws) and three-wheelers (3Ws) on the road across the world. There are 600,000 electric buses deployed globally, already accounting for around 40 per cent of new sales, driven by the e-bus push in China.
• Although the upfront cost parity might take a few years to materialise, electric vehicles are already cheaper on the basis of total cost of ownership (TCO) over their lifetime, especially for commercial and heavy-duty-vehicles (HDVs) that are driven long distances.

Lessons from RE sector

• India can learn from its own success in the electricity sector of using Renewable Purchase Obligation (RPO) to drive cost reductions in solar and wind power. RPO created a large scale guaranteed market for renewable energy (RE) by requiring Discoms to buy a certain share of their power purchase from RE, and combined it with smart competitive auction policies.
• As a result, India achieved some of the lowest prices for RE in the world. Similar success can be achieved with clean vehicles by complementing the current policies on incentives with a zero-emission-vehicle (ZEV) mandate that enforces a percentage of vehicle sales to be clean/electric by a given deadline.
• A ZEV mandate helps drive down the costs of EVs and increase their availability — California’s ZEV mandate has been the propulsion for EV adoption, ecosystem transformation and incentivising a technology disruptor such as Tesla.

Securing supply chains

• Would we be just substituting oil import with import of batteries and materials such as lithium? Securing supply chains of critical materials such as lithium would be strategically important, however, at current prices, eliminating $100 billion of oil import would require only about $1-2 billion of lithium imports. Nonetheless, this would warrant strategic collaboration with like-minded countries for securing supply chain of raw materials and critical elements.

Way Forward:

• Through a transparent, investor friendly and a competitive policy initiative, the government hopes to accelerate exploration activities and provide impetus to expeditious production of oil and gas thereby ensuring energy security in the country.
• Environmental and health co-benefits of clean road transportation would be immense, in addition to realising the objective of energy security. Vision of energy independence by 2047 can be realised but we need to start now on charting this path ahead.

Source: The Hindu BL

Mains Question:

Q. “India oil import has not only adversely impacted the country’s balance of trade, but also hurt its strategic interest”. Critically Examine.