Fossil fuel de-addiction may wipe out a big chunk of India’s government revenues

Image: REUTERS/Amit Dave
We may earn a commission from links on this page.

One of the biggest losers in the fight against climate change could be the Indian government.

Taxes and other revenue from fossil fuels contributed $86 billion (Rs6.23 lakh crore) to the budgets of India’s national and state governments in 2017, according to a study by the International Institute for Sustainable Development (IISD). That was 17.8% of their combined revenue that year.

The lion’s share of the $86 billion pie comes from the excise duty on oil suppliers and the goods and services tax (earlier value-added tax) levied on consumers.

This makes India the second-most dependent on fossil fuel revenue among BRICS nations, a group of five major emerging economies, the report said.

While India’s GDP grew between 2011 and 2017, the share of revenue from fossil fuels in state coffers remained more or less flat. A shift away from fossil fuels towards renewable energy in the wake of climate change threatens to substantially dent national and state government budgets.

The subsidise-and-tax model

While the government taxes fossil fuels, it also subsidises them, with the stated goal of keeping them affordable. In the financial year ended March 2018, subsidies to the oil & gas industry stood at $6.5 billion, while coal (and the electricity generated from coal) received $1.92 billion.

Power plants are the biggest consumers of coal, while oil and other petroleum products are mainly used in transportation. India is the world’s second largest coal producer. But 84% of the country’s oil demand is met with imports.

“The oil & gas industry keeps saying that they give a lot of revenue to the government, but they also receive so much in subsidies,” said Vibhuti Garg, an IISD energy specialist and one of the authors of the report.

The government should restrict universal subsidies to low-income residents and raise taxes on the industry, Garg added. While the latter would raise fossil fuels’ share in national budgets initially, consumers would eventually be weaned off and shift towards cleaner energy sources. A higher price tag would also account for the spillover harms of fossil fuel use, she said.

The burning of fuels in India was responsible for 7% of global carbon dioxide emissions last year. This worsens the impacts of climate change such as droughts and floods, which are likely to hurt Indians worse than the rest of the global population.