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Latest DELHI – Outcry followed the release of the draft India-US trade agreement in February, with a key point of contention being the US requirement that India curtail its oil imports from Russia. Those imports surged from 2% of India’s total oil intake in 2021 to 36% by 2024, driven by the substantial discount – as much as $35 per barrel below Brent crude – offered following Russia’s invasion of Ukraine. While the discount has recently narrowed to around $2, and Russian oil imports have decreased accordingly, the debate highlights a fundamental challenge for India’s economy: its dependence on imported energy.
Data reveals a growing reliance on energy imports throughout India’s economic expansion. While China has also been energy dependent, India’s dependency has risen from 10% of energy consumption in 1990 to over 35% in 2023, according to analysis of energy consumption trends. This increasing dependence poses a strategic risk as geopolitical factors increasingly influence international trade.
One potential response would be to increase investment in hydrocarbon exploration and production, mirroring the approach taken by the United States under the Trump administration. However, a more strategic path, experts suggest, is to emulate China and transition towards a renewables-based electro-state. This approach offers several advantages, including the widespread availability of solar and wind resources, particularly within India. A shift to renewables would not only reduce import dependence but also accelerate electrification, crucial for sustaining emerging technologies like data centers, electric vehicles, and artificial intelligence.
Beyond energy security, a move towards renewables addresses significant domestic concerns. A recent World Bank study highlighted the severe social costs associated with burning coal and oil, with New Delhi frequently cited as an example of extreme air pollution. Approximately $40-60 billion in existing thermal power investments are already considered stranded or at risk, as solar-plus-battery storage solutions become increasingly cost-competitive.
However, transitioning to renewables carries the risk of shifting dependence from oil to technology, given China’s dominance in solar manufacturing and battery supply chains – controlling over 80% of solar production. This concern underscores the require to revitalize India’s manufacturing sector. A recent whitepaper suggests that cheaper electricity is essential to capitalize on the “China+1 opportunity,” as multinational corporations diversify production beyond China. The report highlights that India’s manufacturing sector has been hampered by electricity costs that are double those of competitor countries.
India’s experience with the information technology sector provides a contrasting example. Reforms in the telecommunications sector spurred rapid growth, while a lack of similar reforms in the power sector hindered manufacturing development. The recent trade agreements with the European Union and the US offer potential avenues for attracting investment and boosting manufacturing, but require domestic reforms, particularly within the power sector.
Currently, electricity accounts for 15.6% of India’s total energy consumption, lower than China’s share at a comparable stage of development (27.4% in 2009) and significantly lower than China’s current level. Renewables constitute 20% of India’s energy mix, compared to 35% in China. Despite significant progress – including the addition of 50 gigawatts of renewable capacity in 2025 – India lags behind China in its pursuit of energy independence. The recent surge in renewable energy adoption is largely attributed to the 90% decline in global solar costs since 2010, rather than solely to strategic policy decisions.
Structural and institutional challenges threaten to impede progress. Decision-making is fragmented between the central government and the 28 state governments, with the latter controlling the critical electricity distribution sector. Indian distribution companies (“discoms”), largely public-sector monopolies, are burdened with approximately $75 billion in debt, stemming from populist political pressures that keep electricity prices below cost. This financial strain prevents them from purchasing power from renewable generators, resulting in over 50 GW of excess renewable energy supply. Inadequate grid infrastructure and storage capacity – requiring an estimated $50 billion in investment by 2035 – limit the integration of renewable energy sources, with approximately 60 GW of power currently constrained by transmission bottlenecks.
To overcome its energy dependence, India must accelerate its transition to an electro-state. While the central government is taking steps in the right direction, bolder reforms are needed, particularly at the state level. Addressing the dominance of inefficient public-sector monopolies and fostering competition will be crucial to facilitating the technological transition. The pace of reform will directly impact India’s vulnerability to shifting geopolitical dynamics in the energy sector.
