mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Indian Threat To U.S. Asia Strategy?

India’s energy shortage is getting so severe and its ramifications for the country’s future development are so great that the failure of India’s energy policy could undermine America’s new Asia grand strategy. The WSJ reports:

Shortages of coal, oil and natural gas will require India to import increasing amounts of high-cost fossil fuels, say energy experts, risking inflation and putting the country in stepped-up competition with China, Japan and South Korea…

With annual demand expected to more than double in the next two decades to the equivalent of six billion barrels of oil, the energy crunch threatens to knock India off its growth path. The national economy has already slowed amid paltry business investment and stalled reforms. It tallied just 5.3% growth in the quarter that ended March 31, the lowest level in almost a decade and well shy of the country’s 9% goal.

A number of problems limit India’s domestic energy production: a shortage of domestic fossil fuels, restrictive regulations, infrastructure badly in need of repair. Across India, coal mines are starting to run out. Importing energy, the obvious alternative, costs more: “India’s efforts in April to strike a long-term gas supply deal with Qatar faltered over price, about $20 per million British thermal units, or more than triple the cost of Indian domestic gas.”

The situation today is not a pretty one. Power shortages are widespread and businesses suffer tremendously as a result. “Even in such business hubs as Delhi’s suburb of Gurgaon, companies employ backup generators because of regular outages. Factories are forced to curtail production.”

There are two huge problems behind the bottleneck, and the government is a long way from solving either one of them. The first is India’s practice of keeping energy and related costs low with government subsidies and price controls. This costs a lot of money. “In 2008 energy subsidies totaled $41bn, or 3.4 per cent of GDP, and the country’s per capita oil subsidies are three times as high as China’s, according to official data,” says the FT.

But most Indians are very poor, and ending the subsidies on basic products like cooking oil and kerosene would have unpredictable consequences. Few Indian politicians dare to propose such steps, and although in theory targeted aid to the poor would be both cheaper and more just, India’s ramshackle and corrupt mix of national, state and local authorities is probably not capable of administering this kind of task.

The subsidy problem has consequences for the operation of India’s current energy infrastructure. Squeezed between artificially low price controls and the miserliness of a government that is trying to control the cost of the subsidies it can neither end nor afford, India’s energy producers don’t have the capital and can’t get the approvals for necessary repairs and improvements. The performance of the energy sector is running down even as India’s growing economy is placing heavier demands on the sector.

This brings us to the other crippling weakness of India’s current set up: the government is largely unable to manage the complicated processes involved in any major infrastructure, mining or extraction project. It is not just power plants, coal mines and gas fields that suffer. In stark contrast to China, the Indian government has by and large failed to build the infrastructure that its economic growth requires.

The new power plants and mines the country needs are being built very slowly if at all — and the price controls on their outputs don’t provide much incentive for investors to get into the long and tortured approvals required from a sluggish, poorly managed and not always honest bureaucracy.

In the past, India’s whole economy worked this way. It’s energy sector grew slowly, but so did everything else. Now, parts of the economy are moving at warp speed, but others are still moving at the slow, ox-cart pace of what used to be known as “the Hindu rate of growth.” This won’t work. Either the ox cart will speed up, or the spaceship will slow down — and quite possibly crash.

America’s grand strategy in Asia depends, among other things, on continued high growth in India. Right now, India’s energy problems may be even more a threat to long term US hopes for peace in Asia than the whole Chinese fleet.

Features Icon
show comments
  • Jim.

    Are they better off than they were under British management, or not?

  • Kenny

    As massively populated Third World countries develop and try to attain quasi-middle class stature for millions of their people, the demand on energy can only grow.

    We may not have reached peak oil but be sure reached the peak as far as relatively inexpensive oil (and energy) goes.

    Alternative energy sources are pipe dreams and with nuclear energy being battered (Japan, Germany), the price of energy can only go up and up and up in the world market.

    U.S. ingenuity has helped America with the shale innovations, but places like India, China, Brazil, etc. are in a tough spot.

    Modern civilization depends on on billions of slave (machines) at our command, and these slaves cease working without a steady input of energy. Fact.

  • Jacksonian Libertarian

    That which cannot continue, won’t. When the voters get sick of having no power, they will fire the incompetents running the government and give someone else a chance.

  • Mapper

    This and the piece on Israel’s energy policy below are just magnificent insights on international relations, connecting energy developments to wider geopolitical change. The mainstream press simply aren’t covering this kind of story with an eye to the big picture. This will still count when a thousand tedious media “horse race” stories about the November electon have been forgotten. Congratulations.

    I still disagree with you that personal services can be the future of the US economy, though. A barista-centric economy is not a happy one.

  • Luke Lea

    India lacks human capital (= iq x education) which is why it is wrong to encourage the few educated Indians who are intellectually endowed to move to the United States. Why do we think it’s always about us?

  • Mick The Reactionary

    I have been reading Tom Friedman and I’m confused. Tom has told us that India is a one huge corporate campus where millions of highly educated, well paid software developers debug 1970th Cobol programs for Texas Blue Cross.

    Mead, you should read Tom Friedman, you will see how wrong you are.

  • Kris

    Luke@5: Ah yes, we should discourage immigration from India for the good of India. It’s not about us, it’s for India! Out of the merest curiosity, where do you stand on helping out India through outsourcing, or even on giving Indian students access to our top universities (after which they would be returned to India, of course)?

  • Kris

    Mick@6: How dare you insult Indians by claiming that they are all COBOL programmers? And mercenaries for the nefarious health insurance industry, at that? 🙂

  • Brendan Doran

    Of course WE should think about US. Certainly no Indian would fault us for it!

    WE can of course help with supply..the rest..

    As for Friedman I took his advice on driving my car after throwing away the steering wheel. I think I should have after the lawsuit as nearly a comfortable life as a quadriplegic can.. [God..forgive me that one]…

  • Luke Lea

    @Kris, I think it is fine if Indian and Chinese students study in America. It improves their human capital and exposes them to the social capital of Western civilization. Both of those are pluses if they go back home and apply themselves.

  • Viceroy

    Commenter #1, Jim, wrote:

    “Are they better off than they were under British management, or not?”

    What is the purpose of this question? It is irrelevant whether India was “better off” during British colonial rule.

    If the British today could do a better job running the United States than Americans can do, would you advocate that we return to our former status as a British colony?

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service