New Delhi – India finds itself at a critical juncture in its energy policy, increasingly vulnerable to geopolitical shifts and the require for strategic autonomy. A recent draft trade agreement with the United States, while aiming to bolster economic ties, has highlighted India’s reliance on imported energy, particularly oil, and sparked debate over the path forward. The core of the discussion centers on India’s growing imports of Russian oil, which surged following Russia’s invasion of Ukraine, and the US request for India to phase them out.
The issue extends beyond a single trade deal. India’s energy dependence has steadily risen, from 10% of total energy consumption in 1990 to over 35% in 2023, a trend that contrasts with China’s experience. This reliance leaves India susceptible to global price fluctuations and geopolitical pressures, making a shift towards energy independence a national priority. The question now is whether India will double down on traditional hydrocarbon investments or embrace a future powered by renewable energy sources.
The Russian Oil Dilemma and Broader Energy Security
The proposed US-India trade agreement stipulated a reduction in India’s oil imports from Russia, which had dramatically increased from 2% in 2021 to 36% by 2024, driven by significant discounts – as much as $35 per barrel below Brent crude. While the discount has narrowed to around $2 recently, imports have correspondingly decreased. Though, the broader issue of energy security remains. Controversies surrounding the origin of oil imports – whether from Russia, Iran, or Venezuela – are likely to persist, underscoring the fundamental challenge of India’s dependence on foreign energy sources.
The Case for a Renewables-Powered “Electro-State”
Rather than increasing investment in hydrocarbons, a path mirrored by the United States under President Donald Trump, a more strategic approach for India lies in transitioning to a renewables-based “electro-state.” This shift offers numerous advantages. India is uniquely positioned to harness solar and wind energy, resources readily available across the country. Increased reliance on renewables would not only reduce dependence on foreign oil but also drive the electrification needed to support emerging technologies like data centers, electric vehicles, and artificial intelligence.
Beyond energy independence, a move towards renewables addresses critical domestic concerns. Pollution from burning coal and oil has had devastating social costs, particularly in cities like New Delhi, often described as an “open-air gas chamber.” A shift away from coal is also economically sound, given that $40-60 billion in thermal power investments are already considered stranded or at risk, as solar-plus-battery storage becomes increasingly competitive.
Navigating Technological Dependence and Manufacturing Revival
A potential drawback of transitioning to renewables is the risk of becoming reliant on other nations for technology, particularly given China’s dominance in solar manufacturing and battery supply chains – controlling over 80% of solar production. However, this challenge presents an opportunity to revitalize India’s manufacturing sector. Cheaper electricity, a direct result of increased renewable energy adoption, is crucial for boosting manufacturing competitiveness. A 2023 study detailed in A Sixth of Humanity: Independent India’s Development Odyssey, by Devesh Kapur and Arvind Subramanian, found that manufacturing in India has been hampered by electricity costs that are double those of competitor countries.
India’s success in the information technology sector demonstrates the power of reform. While the telecommunications sector benefited from strategic changes, the electricity sector has lagged, hindering manufacturing growth. Recent trade agreements with the European Union and the US offer a chance to capitalize on the “China+1 opportunity” – the diversification of production away from China – but realizing this potential requires significant domestic reforms, particularly within the power sector.
The Challenges of Implementation and Distribution
Currently, electricity accounts for 15.6% of India’s total energy consumption, lower than China’s 27.4% at a comparable stage of development. Renewables account for 20% of India’s energy mix, compared to 35% in China. While India has made strides in adding renewable capacity – including 50 gigawatts in 2025 – serious structural and institutional obstacles remain. The fragmentation of decision-making between the central government and the 28 state governments, particularly regarding the critical distribution sector, poses a significant challenge.
Indian distribution companies (“discoms”), largely public-sector monopolies, are burdened by financial instability due to populist policies that keep electricity prices below cost. These discoms have accumulated roughly $75 billion in debt and are unable to purchase power from renewable generators, resulting in over 50 GW of excess renewable energy supply. Inadequate grid infrastructure and storage capacity – requiring an estimated $50 billion in investment by 2035 – impede the full potential of renewable energy. Currently, approximately 60 GW of power is constrained by insufficient transmission capacity.
To overcome its energy dependence, India must accelerate its transition to an electro-state. This requires bold reforms, particularly at the state level, to address the inefficiencies of public-sector monopolies and foster competition. The longer India delays, the more vulnerable it will be to the shifting geopolitical landscape of energy.
The recent optimism surrounding India’s renewable energy progress is, to some extent, premature. The increase in renewable energy share is largely attributable to the 90% decline in global solar costs since 2010, rather than solely to domestic policy initiatives.
India’s commitment to renewables is undeniable, with substantial capacity additions and promising green hydrogen auctions. However, overcoming structural and institutional hurdles is paramount to unlocking the full potential of a sustainable energy future.
The next critical step for India will be the implementation of comprehensive reforms within the power sector, particularly addressing the financial health of discoms and investing in grid infrastructure. These actions will be crucial in determining whether India can truly achieve energy independence and secure its economic future.
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