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Policy reforms help manufacturing sector becomes energy-efficient in last two decades: Study

In the last two decades, India’s manufacturing sector has gained 39 per cent in energy efficiency thanks to various policy reforms by the Centre, according to a research by IIT-Madras.

For instance, in 1980 for an output of ₹100, the manufacturing sector spent ₹30.56 on energy. In 2018, this cost declined to ₹23.84, thus reducing energy cost in constant terms, said Santosh Kumar Sahu, Assistant Professor of Economics, Department of Humanities and Social Sciences, IIT- Madras, who did the study along with his research student Prantik Bagchi.

The government allowed existing capacity to be used more fully; allowed creation of additional capacity on a larger or more economic scale; removed constraints in raw material availability and allowed access to better technologies through import of plant and equipment. Manufacturing sector also achieved energy efficiency from policies related to clean development mechanism, technology transfer, foreign direct investment, innovation and R&D, Sahu told

But the improvement is not uniform across States. Almost half the States have attained energy efficiency because of positive energy policies such as the National Mission on Energy Efficiency of 2008 at the national level, and Chhattisgarh State Solar Energy Policy of 2012 and Odisha Solar Policy of 2013, among others, at the State levels. “The role of States in making policies are equally important to foster productivity and energy efficiency at the aggregate level,” he said.

Among the States, Tamil Nadu with a strong manufacturing and MSME base, is one of the States that have done well in energy efficiency, Sahu said.

Domestic industries are trying to strike a balance between profitability, productivity, efficiency and environmental externalities. Hence, understanding the energy consumption patterns and energy-efficient techniques being employed by the industries will raise the know-how of the sustainable methods of production and help in devising effective policies to cut emissions.

Sahu used data from the Annual Survey of Industries, European Union’s Joint Research Centre; and Union Ministry of Environment, Forest and Climate Change, to establish a distinct relationship between energy intensity and productivity for the Indian manufacturing sector.

“Our results indicate energy efficiency gain and reduction in emission intensity. Further, we claim that large States in India have fallen into a productivity dilemma, which indicates the need to strengthen the manufacturing policy, particularly for those States. Small States, however, become highly effective in energy efficiency gain. We also find that post-2008 energy efficiency gain is influenced by technological progress, economies of scale, and pollution-loads in the manufacturing sector of India,” said Sahu. Each State has its own energy requirements, and should have policies accordingly on energy efficiency.

Given the competitiveness of the industrial sector, productivity is also crucial. Therefore, explaining energy intensity and productivity will add to the existing literature for better policy measures. To be globally competitive, therefore, Indian industries have to be both energy-efficient and productive, he said.