As energy demand rises amid geopolitical volatility, India must make efficiency a first-order priority to reduce vulnerability, cushion shocks, and sustain growth with lower energy intensity
India is expected to account for one of the largest increases in global energy demand in the coming decades. As demand rises in parallel with the Viksit Bharat 2047 development goals and the 2070 net zero commitments, the question must expand from how much energy India can access in a contested geo-economic environment to how efficiently it can use what it acquires to sustain economic growth. Geopolitical instability may alter pricing structures and increase exposure, but it does not reduce underlying demand. Without intervention, it amplifies existing vulnerabilities.
Indeed, oil consumption needs are not the only worry. Crude and gas imports shape more than just consumption patterns. They influence production as well. This interdependence complicates the current situation. Consumers of oil and gas are affected directly through rising prices and indirectly through disruptions in domestic electricity generation and gas supply. This is visible in India’s current CNG crisis. Increasing energy consumption feeds into broader macroeconomic pressures, affecting fiscal stability, inflation, affordability, and the delivery of essential services across a growing population. These pressures make a strong case for reducing energy intensity. While total consumption is set to rise, the amount of energy required for each unit of economic activity can be lowered through efficiency gains.
A useful reference point for this approach is Germany, a country that has similarly struggled with accessing energy for its industrial sector and for consumers amid a complex geopolitical and geo-economic environment. While the energy supply chains of the two nations are different, there is one striking aspect that is worth comparing: The gap in energy intensity.
India’s energy intensity is nearly twice that of Germany’s. Germany has reduced its energy intensity by 45 percent over the past decade to 1925 MJ per unit of GDP (2015 USD PPP). India has done significant work as well, reducing its energy efficiency by 36 percent. Even so, the current energy intensity of the country lies at 3642 MJ per unit of GDP (2015 SD PPP). Germany operates its economy on significantly lower energy per unit of output. While the disparity in Germany's and India's development stages warrants such differences, the crucial point of note is Germany’s energy policies and how they have propelled the country’s energy efficiency. Notably, studying Germany’s method is important for India due to the similarities in policy design but differences in execution. This is where the lesson lies.
The PAT scheme illustrates this challenge with a visible decline in compliance rates across successive cycles, indicating a clear narrative of inconsequence among the obligated entities. The signal this sent to the market clearly indicated that inefficiency was not sufficiently penalised.
Germany’s positive results are a direct result of treating energy efficiency as the foundation of its transition. Efficiency has been driven through multiple mechanisms implemented simultaneously, including a rising carbon price, mandatory building energy codes, appliance efficiency standards, industrial cap-and-trade systems based on energy intensity, subsidies for heat pumps and sustained public investment in research and development. The impact of these measures has been cumulative, creating a durable shift in how energy is used, leaving Germany as one of the top countries in the IEA’s global energy efficiency rankings.
India, in contrast, has developed a robust institutional framework but has struggled with outcomes. The Bureau of Energy Efficiency has implemented several flagship programmes, including standards and labelling, building energy codes, the Perform, Achieve and Trade (PAT) scheme and demand side management initiatives. This set of programmes broadly aligns with international best practices. The limitation does not lie in design but in execution.
A key structural issue is enforceability. Many of these programmes are not supported by strong systemic price signals, particularly in the absence of a carbon price. This weakens their overall impact. The PAT scheme illustrates this challenge with a visible decline in compliance rates across successive cycles, indicating a clear narrative of inconsequence among the obligated entities. The signal this sent to the market clearly indicated that inefficiency was not sufficiently penalised. This reduced the incentive to adopt more efficient practices.
With the current, almost non-existent efficiency budget, India is moving in the opposite direction from Germany’s path. Given India's exposure problem at the moment, a domestic cushion via efficiency needs to be encouraged, not eradicated.
A second limitation lies in the allocation of financial resources. The scale and direction of funding reflect the level of policy prioritisation. In 2022, Germany directed substantial financial resources toward its Climate and Transformation Fund, amounting to 500 billion euros, with 3.4 billion euros specifically allocated to energy and resource efficiency. During the same period, India’s allocations toward energy efficiency, including funding for the Bureau of Energy Efficiency and related conservation schemes, declined significantly. In 2022-23, the combined budget for these programmes was effectively halved. While the absolute figures are expected to be different, these trends reveal the secondary nature and role that efficiency plays in India's energy policies. Without financial support, no policy can take effect. With the current, almost non-existent efficiency budget, India is moving in the opposite direction from Germany’s path. Given India's exposure problem at the moment, a domestic cushion via efficiency needs to be encouraged, not eradicated.
The consequences of this difference between India and Germany become most evident during periods of crisis. When the Russia-related energy disruptions unfolded in 2022, Germany relied heavily on efficiency as an immediate response. Industrial gas consumption during the second half of the year fell by an average of 22 percent compared to previous levels, while gas intensity improved by around 25 percent. A large share of these gains came from efficiency improvements within sectors rather than reductions in output. Survey data further showed that 75 percent of German firms were able to reduce natural gas consumption without cutting production. This demonstrates that efficiency can function as a rapid and effective buffer during supply shocks.
India now faces a similar set of challenges. In 2022, it benefited from discounted Russian oil, which provided temporary insulation from global price pressures. Changes in the trade environment are narrowing these advantages. Addressing this requires a reassessment of priorities.
A clearer allocation of financial resources toward energy efficiency is necessary, alongside a broader reframing of energy security policy. Efficiency must be integrated as a central component of this framework, not as a supporting measure.
A clearer allocation of financial resources toward energy efficiency is necessary, alongside a broader reframing of energy security policy. Efficiency must be integrated as a central component of this framework, not as a supporting measure. India has already begun to build the necessary systems, but it has not yet elevated efficiency to a first-order priority. In a context defined by persistent volatility and external dependence, this shift is no longer optional. It is necessary to reduce vulnerability, absorb shocks and safeguard the economic interests of its population.
Diya Shah is a Research Assistant with the Centre for Economy and Growth at the Observer Research Foundation.
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Diya Shah is a Research Assistant at ORF’s Centre for Economy and Growth. Her work explores developments in climate finance as part of a broader, ...
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