GS Paper 3

Renewable Energy in India

As the world’s fastest-growing major economy with rising energy needs, India will account for approximately 25 per cent of the global energy demand growth between 2020-2040, as per BP energy outlook and IEA estimates.

Ensuring energy access, availability and affordability for large population is imperative.

Energy Sector

The energy sector is fundamental to growth and development. Availability of electricity, petrol, diesel and gas at competitive prices is essential for the efficient functioning of energy user sectors, which include households, transportation, industry, agriculture and the government and comprise nearly the entire economy.

Objectives

The government’s on-going energy sector policies aim “to provide access to affordable, reliable, sustainable and modern energy”.
Reduce imports of oil and gas by 10 per cent by 2022-23.
Continue to reduce emission intensity of GDP in a manner that will help India achieve the intended nationally determined contribution (INDC) target of 2030.

The energy sector in India faces a number of challenges, including:

Subsidies and Taxes: A variety of subsidies and taxes distort the energy market and promote the use of inefficient over efficient fuels. They also make Indian exports and domestic production uncompetitive as energy taxes are not under GST and hence, no input credit is given.
Limited domestic energy resources: India is heavily reliant on imports to meet its energy needs. The country has limited domestic reserves of coal, oil, and natural gas, which makes it vulnerable to price fluctuations and supply disruptions.

For Example, Coal:

Demand-supply mismatch in coal leading to imports (25% of domestic requirements).
Most of the thermal power plants are operating below their capacity- Plant Load Factor (PLF) is hardly around 56% in 2019-20.
Delays in Land acquisition for new mines exploration.
outdated technology in mining.

3. Power Generation, Transmission and Distribution

Old inefficient plants continue to operate whereas more efficient plants are underutilized.
Although legally independent, Regulatory Commissions are unable to fully regulate discoms and fix rational tariffs.
State power utilities are not able to invest in system improvements due to their poor financial health.
High aggregate technical and commercial (AT&C) losses
Unmetered power supply to agriculture provides no incentive to farmers to use electricity efficiently
High industrial/commercial tariff and the cross- subsidy regime have affected the competitiveness of the industrial and commercial sectors.

4. Financing constraints: The energy sector in India requires significant investments to modernize its infrastructure and develop new sources of energy. However, financing constraints and a lack of private sector participation have hindered the growth of the sector.

5. Renewable Energy: High energy costs result in reneging on old power purchase agreements (PPAs) and erode their sanctity. This leads to uncertainty regarding power off take and consequently endangers further investments.

6. Policy and regulatory issues: India's energy sector is heavily regulated, and policies and regulations can often be complex and inconsistent. This has led to a lack of clarity and transparency in the sector, which can deter investment and hinder growth.

India has taken several steps to address the challenges faced by the energy sector and promote sustainable energy development.

Steps for sustainable energy development

Renewable energy targets: By 2030, India wants to have 450 GW of renewable energy capacity, including 5 GW of small hydropower, 10 GW of bioenergy, 280 GW of solar, and 140 GW of wind. With 38% of India's total installed capacity being made up of renewable energy as of 2021, the nation has already made significant strides towards achieving this goal.
Energy efficiency initiatives: India has implemented several energy efficiency initiatives, including the National Programme for LED-based Home and Street Lighting, the Perform, Achieve and Trade scheme for energy-intensive industries. These initiatives have helped to reduce energy consumption and greenhouse gas emissions.
Coal sector reforms: India has implemented several reforms in the coal sector, including the commercialization of coal mining, the introduction of revenue sharing and production-linked incentives, and the liberalization of the coal sector to allow for greater private sector participation. These reforms are aimed at increasing coal production and reducing India's dependence on imports.
Rural electrification: India has made significant progress in rural electrification, with the Deen Dayal Upadhyaya Gram Jyoti Yojana and the Saubhagya scheme aimed at providing electricity connections to all households in rural areas.
International cooperation: India has engaged in international cooperation to promote sustainable energy development, including through initiatives such as the International Solar Alliance, the International Energy Agency's Clean Energy Transitions Programme, and the US-India Strategic Energy Partnership. These steps have helped India to make significant progress in addressing the challenges faced by the energy sector and promote sustainable energy development.

However, there is still much work to be done to become a $ 26 trillion economy by 2047, ensuring energy security and achieving energy independence.

Purple Revolution

Lavender farmers in Jammu and Kashmir are bringing ‘Purple Revolution’

About ‘Purple Revolution’:

Doda in Jammu and Kashmir is the birthplace of India’s Purple Revolution.
The Purple Revolution or Lavender Revolution, launched by the Ministry of Science & Technology, aims to promote the indigenous aromatic crop-based agro-economy through the ‘aroma mission’ of the Council of Scientific and Industrial Research (CSIR).
The mission aims to increase the income of the farmers and promote lavender cultivation on commercial scale. Lavender oil, which sells for, at least, Rs. 10,000 per litre, is the main commodity.
Other popular products include medicines, incense sticks, soaps, and air fresheners.
Lavender has been designated by the central government as a "Doda brand product" to promote the rare aromatic plant and boost the morale of farmers, entrepreneurs, and agribusinesses involved in its cultivation as part of this Aroma Mission.
Jammu and Kashmir’s climatic conditions are conducive to lavender cultivation since the aromatic plant can withstand both chilly winters and pleasant summers.

Benefits of Purple Revolution:

The market for lavender oil in India will expand at a CAGR (Compound Annual Growth Rate) of 5.5 percent, while trade is expected to touch $1 billion per year.
The cultivation of lavender is very cost-effective as it yields revenue immediately. It is a low maintenance crop, which can be used from its second year of plantation and blossoms for fifteen years.
In its entirety, lavender production gives better returns when compared to other traditional crops.
Modernised farming: value addition to lavender, Oil from lavender flowers and manufacturing of aromatic products thereby givens an opportunity for starting a startup and sparking entrepreneurship. This will help in creating additional employment.
The “purple revolution” has also helped women's empowerment in a big way- For example (Jammu and Kashmir): After harvesting season of traditional crops, they used to remain without work for five months during winters, but lavender farming has given them a new lease of life and they get round the year work in lavender fields.

About Aroma Mission:

The CSIR Aroma Mission is envisaged to bring transformative change in the aroma sector through desired interventions in the areas of agriculture, processing and product development for fuelling the growth of the aroma industry and rural employment.
Aroma Mission is drawing entrepreneurs and farmers from all across the country. CSIR assisted in the cultivation of 6000 hectares of land in 46 Aspirational districts across the country during Phase I. In addition, almost 44,000 employees were trained.
The CSIR has started Phase-II of the Aroma Mission, which will include over 45,000 skilled human resources and help over 75,000 farming families.
An additional 700 tonnes of essential oil is expected to be produced annually for perfumery, cosmetics and pharmaceutical industries, and use of these oils in value addition and herbal products would generate a business of at least 200 crores.
The activities of the Mission will improve the availability of quality material on a sustainable basis for a boom in the herbal industry based on essential oils.
The income of the farmers through such cultivation is expected to increase by Rs. 30,000 to 60,000/ha/year. About 45,000 skilled human resources capable of multiplying quality planting material, distillation, fractionation and value addition will be developed.
More than 25,000 farming families would be directly benefitted and employment of more than 10-15 lakh mandays will be generated in rural areas.
The scientific interventions made under the mission project would provide assured benefits to the growers of Vidarbha, Bundelkhand, Gujarat, Marathwada, Rajasthan, Andhra Pradesh, Odisha and other states where farmers are exposed to frequent episodes of weather extremes and account for maximum suicides.
The mission will put a mechanism in place for timely agro-advisory, ensuring optimal productivity and fair price of the produce to the farmers and reducing the import of essential oils and enabling India to become a leading exporter of at least some essential oils.

Banking regulation in India

Failure of Silicon Valley Bank in the United States has brought about attention on Banking Regulations in India.

Banking Sector in India:

The Reserve Bank of India (RBI), India’s central bank, issues various guidelines, notifications and policies from time to time to regulate the banking sector.
The RBI supervises and is responsible for managing the operation of the Indian financial system. In addition to issuing regulations and guidelines for banking operations, it also administers the provisions of the RBI Act, the BR Act and FEMA. It has wide discretionary powers and is authorised to inspect and investigate the affairs of banks and to impose penalties in the event of non-compliance.
India has both private sector banks (which include branches and subsidiaries of foreign banks) and public-sector banks (ie, banks in which the government directly or indirectly holds ownership interest). Banks in India can primarily be classified as:
- Scheduled commercial banks (commercial banks performing all banking functions).
- Cooperative banks (set up by cooperative societies for providing financing to small borrowers).
- Regional rural banks (RRBs) (for providing credit to rural and agricultural areas).
- Recently, the RBI has also introduced specialised banks such as payments banks and small finance banks that perform only some banking functions.

Key statutes and regulations that govern the banking industry in India:

Reserve Bank of India Act 1934 (RBI Act): was enacted to establish and set out functions of the RBI. It grants the RBI powers to regulate the monetary policy of India and lays down the constitution, incorporation, capital, management, business and functions of the RBI.
Banking Regulation Act 1949 (BR Act): provides a framework for supervision and regulation of all banks. It also gives the RBI the power to grant licences to banks and regulate their business operation.
Foreign Exchange Management Act 1999 (FEMA): is the primary exchange control legislation in India. FEMA and the rules made thereunder regulate cross-border activities of banks. These are administered by the RBI
Other key statutes:
- The Negotiable Instruments Act 1881;
- The Recovery of Debts Due to Banks and Financial Institutions Act 1993;
- The Bankers Books Evidence Act 1891;
- The Payment and Settlement Systems Act 2007;
- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002; and
- The Banking Ombudsman Scheme 2006.
- Public sector banks are regulated by the BR Act and the statute pursuant to which they have been nationalised and constituted. These include:
  - Banks constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 or the Banking Companies (Acquisition and Transfer of Undertaking Act) 1980; and
  - The State Bank of India and subsidiaries and affiliates of the State Bank of India constituted and regulated by the State Bank of India Act 1955 and the State Bank of India (Subsidiary Banks) Act, 1959 respectively.
  - While the GOI has not made any moves for further nationalisation of banks, the BR Act gives the GOI the power to acquire undertakings of an Indian bank in certain situations, such as breach of banking policy by the bank.
- Government deposit insurance: The deposits placed with various banks are insured by the Deposits Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of the RBI and is governed by the Deposits Insurance and Credit Guarantee Corporation Act 1961. The DICGC insures all deposits such as savings, fixed, current, recurring, etc, except the following:
deposits of foreign governments;
deposits of central and state governments;
inter-bank deposits;
deposits of the state land development banks with state cooperative banks;
any amount due on account of any deposit received outside India; and
any amount that is specifically exempted with prior RBI approval.

Recent Measures to Improve Regulation of Financial Institutions:

With a view to providing a greater measure of protection to depositors in banks, DICGC raised the limit of insurance cover for depositors in insured banks from the earlier level of ₹1 lakh to ₹5 lakh per depositor.
- Accordingly, the number of fully protected accounts at end-March 2022 constituted 97.9% of the total number of accounts. In terms of amount, the total insured deposits as at end- March 2022 stood at ₹81,10,431 crore and constituted 49.0% of assessable deposits (₹1,65,49,630 crore).
- This is higher than the guidance of the International Association for Deposit Insurance (IADI) which recommends coverage of the number of accounts up to 80% and 20-30% in value terms.
Banking Regulations Act - Amendment (2020) for Cooperative Banking:
Issuance of shares and securities by cooperative banks - increase capital base
Supersession of Board of Directors - to address management issues
Allowed RBI to initiate a scheme for reconstruction or amalgamation of a bank without placing it under moratorium - boost public confidence
Changes introduced to the PCA Framework:
PCA applicability and criteria:
- PCA Framework would apply to all banks operating in India including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators
- However, payments banks & SFBs have been removed from the list of lenders where PCA can be initiated
Parameters for PCA:
- Capital, Asset Quality and Leverage are 3 parameters which will be the key areas for monitoring in the revised framework and there are three risk threshold, from 1 to 3, in the increasing order of severity
- The revised framework has removed return on assets as an indicator
A bank will be placed under PCA Framework based on the Audited Annual Financial Results and the ongoing Supervisory Assessment made by RBI
RBI may impose PCA on any bank during the course of a year (including migration from one threshold to another) in case the circumstances so warrant
Exit from PCA and Withdrawal of Restrictions under PCA:
- If no breaches in risk thresholds in any of the parameters are observed as per 4 continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI);
  - Based on Supervisory comfort of the RBI, including an assessment on sustainability of profitability of the ban
Corrective actions prescribed after a bank is placed under PCA:
- Risk Threshold 1:
  - Restriction on dividend distribution/remittance of profits
  - Promoters/Owners/Parent (in the case of foreign banks) to bring in capital
  - Risk Threshold 2:
  - In addition to mandatory actions of Threshold 1
  - Restriction on branch expansion; domestic and/or overseas
  - Risk Threshold 3:
  - In addition to mandatory actions of Threshold 1 & 2
  - Appropriate restrictions on capital expenditure, other than for technological upgradation within Board approved limits
  - Discretionary Actions:
  - Special Supervisory Actions
  - Strategy related
  - Governance related
  - Capital related
  - Credit risk related
  - Market risk related
  - HR related
  - Profitability related
  - Operations/Business related
  - Any other
Consumer Protection Measures:
- Banks in India are subject to consumer protection laws that act as an alternative and speedy remedy to approaching courts, a process that can be expensive and time-consuming.
- The Consumer Protection Act 1986 (the Consumer Protection Act) is the primary legislation governing disputes between consumers and service providers. The relationship between a bank and its customer is regarded as that of a consumer and service provider, therefore bringing them under the ambit of the Consumer Protection Act. A three-tier mechanism has been established to deal with complaints:
  - District forum: this operates at the district level and deals with consumer complaints of a value not exceeding 2 million rupees.
  - State commission: this operates at the state level and deals with consumer complaints of a value between 2 million rupees and 10 million rupees. It also hears appeals against the orders passed by the district forum and
  - National commission: this operates at the national level and deals with consumer complaints of a value exceeding 10 million rupees. It also hears appeals against the orders passed by the state commission. An appeal from the order of the national commission can be directed to the Supreme Court of India.
- Banking Ombudsman Scheme: for the purpose of adjudication of disputes between a bank and its customers.
  - The scheme provides for a grievance redressal mechanism enabling speedy resolution of customer complaints in relation to services rendered by banks.
  - The banking ombudsman is a quasi-judicial authority appointed by the RBI to deal with banking customer complaints relating to deficiency of services by a bank and facilitate resolution through mediation or passing an award.
  - A complaint under the scheme has to be filed within one year of the cause of action having arisen.

Measures taken for sound health of NBFCs:

RBI has proposed to move from a general approach of light touch regulation to one that monitors larger players almost as closely as it does banks. To enable this idea, it has proposed following changes:
- Creation of a 4-layer regulatory framework which includes a Base layer, a Middle layer, Upper layer and a Top layer. The degree of regulation in each sector is proportional to the perception of risk in that sector.
- Classification change for NPAs of base layer NBFCs from 180 to 90 days overdue.

Russian Crude Oil Imports by India

India imported a record 1.62 million barrels per day of Russian oil in February, up 29 per cent from January’s 1.26 million barrels a day, which was also a record.

It is now higher than combined imports from traditional suppliers Iraq and Saudi Arabia.
The rise in Russian imports has been at the expense of Saudi Arabia and the United States. Oil import from Saudi fell 16% month-on-month and that from the U.S. declined 38%.
Refiners continue to snap up plentiful Russian cargoes available at a discount when compared with other grades . And this oil is converted into petrol and diesel at refineries and exported to Western markets like Europe.

Background:

After Russia invaded Ukraine in February 2022, many Western countries and their companies shunned purchase of Russian crude oil.
As mounting international pressures lowered appetite for its crude oil elsewhere, Russia began offering steep discounts to oil refiners in India and few other countries on direct sale of their crude oil.
India being the world’s third-biggest consumer and importer of crude oil, utilised the offer to ramp up purchase of oil at cheap prices.
From a market share of less than 1% in India's import basket before the start of the Russia-Ukraine conflict in February 2022, Russia's share of India's imports rose to 1.62 million barrels per day in February, taking a 35% share.

Why has India continued oil purchase from Russia?

Unprecedented surge in global commodity prices led to inflationary pressures. The Indian basket of crude oil prices also soared to as high as $130 per barrel.
India’s retail inflation (measured by Consumer Price Index or CPI) accelerated to 8-year high of 7.79% in April 2022, thus implying most of India’s inflation was imported. Rapidly growing economy of India requires affordable energy in order to improve the lives of its citizens.
Russia offered steep discounts in the initial phase soon after the Ukraine war began - $20-30 per barrel. Though they have narrowed significantly and stand at just $7-8 on a delivered basis. However, it is still cheaper than viable alternatives.
Russia has long-standing trade and strategic relationships with India, and along with offering steep price discounts is also accepting payments (through VOSTRO accounts) in local currency to keep trade flows strong.

Indian Exports:

While India — the world’s third-largest consumer of crude oil — depends on imports to meet over 85% of its oil requirement, the country is a net exporter of petroleum products as its refining capacity of 250 million tonnes per annum, which is higher than its domestic demand.
As a large refining hub that has ramped up purchases of discounted Russian oil, India now finds itself playing an increasingly prominent role in the global crude oil and refined products supply map.
While the European Union (EU) weans itself off refined petroleum products from Russia, Indian refiners, particularly private sector companies, are rushing in to fill the gap.
In the run-up to the EU’s ban on Russian petroleum products from February 5 — owing to the Ukraine invasion — India saw its refined product exports to the region rise for five straight months.

The exports touched 1.90 million tonnes in January, the highest monthly volume in the first 10 months of the current fiscal.

In the four months leading to the EU’s ban on Russian refined products, the region’s share in India’s petroleum product exports rose from 16% to almost 22%.
India’s petroleum product exports to EU countries rose 20.4% year-on-year in April-January to 11.6 million tonnes.

Way Forward:

While the West was irked at India’s rising purchases of Russian oil in the aftermath of Moscow’s invasion of Ukraine. Major Western powers like the US are comfortable with the rising supply of Indian refined products to Europe.
This is mainly because refiners in countries such as India are ensuring that the global oil and refined products market remains balanced and adequately supplied despite Russian oil and products being shunned by numerous countries.
In fact, a number of experts see higher purchases of Russian oil and rising exports of petroleum products from countries like India as critical for the success of the price caps on Russian oil and refined products which were imposed by G7 countries and their allies without causing a global supply shock.
This provides an opportunity for Indian refiners - particularly export-oriented private sector companies like Reliance Industries and Nayara Energy - to increase purchases of discounted Russian crude.