Niti Ayog has pitched for bringing oil, natural gas, electricity and coal under GST (goods and services tax), a move that would allow input credit to make Indian industry globally more competitive and reduce energy bill for consumers. The ‘Strategy for New India @75’, a vision document released by the government think-tank on Wednesday, also establishes a link between tax and subsidy regimes for energy in India and the goal for reducing the economy’s carbon footprint. Multitude of taxes and subsidies distort the energy market by promoting the use of inefficient over efficient fuels. Besides, high industrial/commercial tariff and the cross-subsidy regime affect the competitiveness of the industrial and commercial sectors.
This puts domestic manufacturers at a disadvantage against global peers as they don’t get input credit in the absence of GST and makes Indian exports uncompetitive. The energy market distortions also do not create strong motivation for energy efficiency, making it more difficult to reduce the economy’s carbon footprint. As a way out, the paper suggests same GST rate for all forms of energy to enable a level playing field and providing all form of subsidies as functional subsidies to end-consumers so that they choose the most suitable and economical form of energy. Bringing petrol and diesel under GST, for example, will not amplify the impact of volatile oil prices on consumers as much as they do now, as was seen two months back.
Indicating the importance of energy efficiency in the overall energy scheme, the paper says steps in this direction has resulted in India using nearly 23% less energy in 2016 than in 2005 for each dollar worth of growth (at 2005 prices). Still, India lags UK and Germany, leaving scope for improvement. But high transaction costs – such as on appointing consultants and vendors for execution — relative to project size makes energy efficiency investments unattractive for investors, especially in the micro, small- and medium-scale enterprises, says the paper.
The paper also pitches for market pricing for old gas fields – mostly with state-run ONGC and OIL, a move that can unlock 30 million cubic meters per day of additional gas, or a third of current domestic production. A subdued gas pricing mechanism has made a rash of discoveries unviable for these companies to start production. Increased domestic gas production will support the government’s objective to cut import dependence for hydrocarbons by 10% and raise share of gas in energy basket to 15% for a cleaner economic growth.