'9% growth target too high'

One of the major assumptions that helped the Planning Commission project an ambitious 9 per cent growth in the gross domestic product over the next five years is an improving energy elasticity of the economy. But this assumption, which forms a vital base for the government’s approach paper for the 12th Five-Year Plan, could be misplaced, experts believe.

The GDP-energy elasticity, a function of energy efficiency, is the percentage growth in energy supply required for every 1 per cent growth in the GDP. A decreasing elasticity implies that an economy is using lesser energy to achieve the same level of GDP growth. India’s energy elasticity, currently at 0.80, has been falling over time.

The commission’s assumption of improvement in elasticity further helped it project lower energy requirement. According to a Planning Commission official, the approach paper says GDP growth of 9 per cent per year during 2012-17 will require energy supply to grow at around 6.5 per cent per year assuming further decline in elasticity. This is in sharp contrast to the 7 per cent energy growth, which the commission had, in its full meeting in April, said would be required for 9 per cent GDP growth.

“Energy elasticity,” says Amrit Pandurangi, Senior Director at Deloitte Touche Tohmatsu, “should not be seen as a panacea for measuring energy supply and growth projections. Elasticity keeps changing depending on a combination of various factors including pattern of energy usage. Increasing contribution by services sector to the growth, for instance, would impact projection.”

He also notes that distribution efficiency impacts energy supply.

The twelfth Plan approach paper has also projected a marginal rise in India’s energy import dependence in volume terms. The country’s total commercial energy requirement stood at 522 million tonne of oil equivalent (MTOE) last fiscal, of which 36.53 per cent was imported. These imports, as a percentage of total requirement, have been projected to rise to 37.9 by 2016-17.

Oil imports, as a percentage of total oil requirement, are seen to jump from 76.4 per cent last fiscal to 80.5 per cent at the end of the twelfth Plan. Import dependence for natural gas is projected to increase from 19 per cent to 28 per cent. In coal, imports would increase from 19.8 per cent of total supply to 22 per cent. The import of hydro power, as a percentage of total demand, would decrease from 4.6 per cent in 2010-11 to 3.5 per cent in 2016-17.

The paper, however, cautions against massive and expensive imports emphasising upon the role of prices. While stating that if energy were plentifully available in global markets at affordable prices, large energy imports may not present serious problems, it says that energy prices are rising globally and imports will be expensive.

International coal prices, on an average, have doubled from $60 per tonne a year ago to over $110 per tonne at present, at the back of a spurt in demand from developing economies like China and India coupled with supply disruptions owing to recent floods in Australia, a major producer. Price of benchmark crude oil price have in the current year risen to $112 a barrel compared to $85 last year.