RESOURCE security is likely to grow in salience for the government that has recently taken office in Delhi. India, whose per capita consumption of energy and many minerals remains low, has to balance the cumulative demand for greater resource use with the risks of exposing itself to greater price volatility and environmental pressures. In fact, India has to confront three interlocking challenges of sustainable development: meeting basic needs for food, fuel, and water for a growing population; securing energy and other minerals to support economic growth while maximizing resource efficiency; and managing the environmental constraints and strategic consequences of increased resource use and competition. This triple mantra – focusing on access, efficiency and externalities – must be the guiding principle for the new government. What would that mean for India’s strategic imperatives and foreign policy?

India’s development needs underscore these challenges. By 2050 its population would be around 1.7 billion and the economy could grow tenfold, with a commensurate increase in the demand for resources. But, even currently, it is struggling to meet domestic demand for resources. Despite being the world’s fifth largest electricity producer, 32.8% of all households in India were not electrified in 2011. Nearly 93% of these un-electrified households were in rural areas with most depending on kerosene to satisfy their basic lighting needs. This translates to 14% of the global population living without electricity and nearly a third of the global population cooking with traditional biofuels. With little spare land or water, India is also among the most vulnerable to climate change.

Three concerns are driving the attention to resource security. The first is whether adequate quantities of energy supplies are available both for meeting basic needs as well as for driving industrial development.

Access to energy is closely related to other human development outcomes, whether it be an increase in incomes, better opportunities for education, improvements in household air quality and health outcomes, or reduction in gender disparities. In turn, with rising incomes, the demand for modern energy sources also rises. Households are expected to shift from solid fuels (such as traditional biomass) to liquid fuels (kerosene) to gas (LPG) and eventually electricity. This trend can be observed in urban India. But this so called ‘energy ladder’ misses several rungs in rural India.

Analysis by the Council on Energy, Environment and Water (CEEW) shows that despite rising incomes, the consumption of traditional biomass keeps rising in rural India, all the way up to the 70th percentile. Even after accounting for preferences for certain types of fuels, the uncomfortable truth is that the supply of modern fuels is well short of the demand that higher incomes and ability to pay would indicate. Biofuels, biomass and waste account for a third of final energy consumption in India. Energy access in India is not simply a poverty problem; it is embedded in lack of supply, inequalities and distorted energy pricing policies.

 

As a whole, commercial primary energy consumption in India will grow five and a half times between 2010 and 2050. Imports of coal (currently accounting for 15% of demand) are growing rapidly and projected to reach 40% by 2030, based on current trends, or sooner (by 2016) if power sector demand and supply gaps have to be closed. Oil production has remained almost flat over the past decade while oil imports will increase four- to sixfold by 2030. India is exposed to both supply risks (war, strikes, political upheavals in oil exporting countries, deliberate blockades of supplies to India) and market risks (higher and more volatile prices). Demand for gas is expected to grow at over 5% annually up to 2030, making substantial investment necessary in LNG terminals and trans-national pipelines.

In addition to energy related fuels, India also needs other critical mineral resources to drive industrial growth. A mineral can be regarded as critical only if it performs an essential function for which few or no satisfactory substitutes exist. No publicly available exercise has been conducted to identify critical minerals for India. CEEW has begun assessing the criticality of 33 minerals based on their economic importance, factoring in supply risks and environmental constraints. These minerals contribute to the manufacturing sector significantly, account for 75% of India’s overall non-fuel mineral import bill, and will grow in relevance as the share of manufacturing in GDP increases.

 

The second big concern is that energy, food, water and climate form a resource nexus, affecting each other. Consider energy’s impact on food, water and climate. In agriculture, oil accounts for 42% of energy use, so high or volatile crude oil prices drive food inflation and impact the fiscal balance if subsidies cushion some of the shock. With subsidized but poor quality electricity, farmers over-extract groundwater for irrigation from nearly 17 million electrified pump sets, leading to both water and energy shortages, and land degradation. The climate is affected by fossil fuel demand in India and elsewhere. Natural gas could partially mitigate the impact (because it is cleaner than coal), but its use would depend on pricing decisions, infrastructure, and bilateral agreements to import gas.

Food markets, in turn, are affected if crops are diverted to produce biofuels. Inefficient subsidies elsewhere, such as for corn based ethanol in the United States, impact global prices for major crops. Cropping patterns also affect water use efficiency. If food security is largely measured by rising stocks of foodgrains, then continued production of water intensive crops, like rice, in our northern states will further deplete water tables.

Water is central to food production (more than 80% is used in agriculture with groundwater taking a majority share). As groundwater levels fall rapidly, food output will be adversely affected unless demand side efficiency measures are adopted. This will, in turn, raise food prices, undermine food security and threaten farmers’ incomes over the long-term.

Water is also critical for energy. Thermal power plants use nearly 88% of water used in industry. More than 70% of existing and planned thermal and hydropower capacity is located or expected in water scarce or water stressed areas. Some types of renewable energy, such as concentrated solar power, also need water for cooling. Five of the seven concentrated solar power (CSP) projects are currently located in Rajasthan and rely on the Indira Gandhi Canal. Water supply shortages present a key risk to power generation.

 

The quest for resources is not India’s alone. India and China are expected to account for half of the increase in world energy use until 2040 with them importing 92% and 84% of their oil demand, respectively, by 2035. Moreover, global energy markets are constantly changing character thanks to technological improvements, environmental pressures, rising demand, pricing policies, conflicts and supply shocks. For the first time since 1995, U.S. domestic crude oil production exceeded imports by two million barrels per day in 2013. China has already become the world’s largest oil importer. This has profound implications for global security, protection of sea lanes, interventions in oil rich but politically fragile states, and the role of markets versus resource nationalism.

 

Resource security matters for the global economy. This is demonstrated by the rise of new consumers of mineral resources (South-South resource trade is now larger than South-North trade), the continued concentration of large-scale mineral production in a few economies, a steep change in price volatility as compared to three decades ago, rapid increase in outward foreign investment by BRICS countries in resource rich economies, and a rising trend of international disputes related to trade in minerals.

A world with multiple poles of energy suppliers, energy consumers and emerging economies has direct implications for coherence between different international organizations. The countries that are members of the multilateral trade regime do not always overlap with those that are part of producers’ cartels. Major energy consumers in the Asia-Pacific region have formed the Asia-Pacific Economic Cooperation (APEC) Energy Working Group. There are new calls for bringing together major suppliers and users under an Energy Stability Board to coordinate emergency actions and give voice to emerging economies. But it is unclear which forums will be chosen by countries to resolve contradictions and disputes.

Therefore, the third set of concerns relate to the deficits in global governance. These include concerns about the way resource markets operate, the institutions which govern resources, worries about equity in access to the global commons, and the means to mitigate or moderate resource related conflict. The success of India’s strategies to secure resources will be, in part, a function of how commodity markets operate and whether other large resource consumers find merit in cooperation over resource nationalism. Global energy and food prices have become more volatile in recent years and have also risen to levels not seen since the early 1970s. Although it is not part of any global energy regime, India’s exposure to global energy markets keeps increasing. Meanwhile, India’s access to the global carbon space keeps shrinking. And India shares climate and water risks with its neighbours with few mechanisms to cooperatively deal with points of vulnerability.

 

I define resource security as the availability of adequate quantities of critical resources, at prices which are affordable and predictable, with minimum risk of supply disruptions, to ensure sustainability for the environment and future generations. But India’s foreign policy has never been particularly effective at energy and resource diplomacy. Any attempt to raise the profile of resource diplomacy will have to account for the small size of the foreign service, limited market intelligence on commercial opportunities, lack of institutionalized links between resource seeking firms and diplomatic outposts, and limited engagement in energy and resource related international forums. These challenges will not be overcome overnight. But the next government can begin to set in motion a process that gears India’s foreign policy and actions in close alignment with its resource interests.

More robust resource diplomacy for India should not be interpreted as an aggressive quest for resource acquisition. Equity oil and gas investments have had limited value. Although overseas production is now around 10% of domestic production, India also has to operate in politically fragile states such as Iran, Iraq, Kazakhstan, Libya, Nigeria, South Sudan and Venezuela. Joint investments for oil exploration in the South China Sea with Vietnam have created tensions with China. Moreover, little equity oil makes its way back to India, and is instead sold in global markets.

Resource acquisition is just one of several instruments that India must have in its tool kit for resource security. Such a tool kit would include better understanding of and integration into global resource markets (rather than locking into single source long-term bilateral deals, which constrain India’s options as market conditions change, prices fall or new sources open up). It would also include developing alternative modes for resource transportation and making it more efficient. Another instrument would focus on restructuring the energy infrastructure at home, relying more on opportunities in decentralized energy and in thinking about resource efficiency measures on the demand side. India will also have to engage more meaningfully with energy institutions, whether at a global or regional level or consider issue specific or resource specific plurilateral regimes. And finally, it will have to encourage R&D at home and promote joint collaborations on energy innovation with other countries.

How could India’s resource diplomacy deploy this tool kit for resource security, which encompasses markets, acquisition of assets, transportation, resource efficiency, global and regional institutions, and innovation? Three mantras – access, efficiency, and externalities – could help focus India’s efforts to orient its resource diplomacy towards its specific development goals and priorities.

 

Establish an Integrated Resource Corporation: An Integrated Resources Corporation (IRC) is needed that could support individual firms with financing and other assistance for a range of critical resources. The IRC’s main role would be to help firms acquire resources via equity capital, guarantees for debt market financing, liability guarantees, long-term bilateral agreements, and coordination with embassies. It would be an autonomous body registered as a not-for-profit entity. The representation on its board would be from major ministries, industry chambers, civil society organizations, and financial institutions. Over the long-term, it could establish overseas offices in countries that are major sources for resources, such as Australia, Canada, Indonesia, Qatar, among others.

 

Bid jointly to lower acquisition costs: There is no avoiding reliance on imports for a range of energy and mineral resource needs. If India does not act strategically, its vulnerability to external supplies will increase. China and India will continue to compete for resources, with the former relying more on state backing, financial or diplomatic, to acquire resources. That said, the two countries have also cooperated from time to time (such as in Sudan, Syria or Myanmar) and professed to work together on exploration, production, refining, marketing, R&D, conservation, trading in oil and joint bidding in third countries. China and India could gain mutually if they explored avenues for collaborating amidst resource competition. First, by pooling financial and technological resources, large state owned oil and gas companies in the two countries could form an unbeatable alliance to address energy security issues. Second, this partnership could mitigate concerns in both countries about energy suppliers playing off one against the other, thereby driving up prices.

 

Develop optimal supply infrastructure for energy and resources: The intersection between maritime and energy security is a potentially serious source of friction with India’s neighbours. Ninety-five per cent of India’s trade by volume depends on maritime routes (or 70% by value), making it highly sensitive to any risk of interruption. It is imperative for India to build the infrastructure that will meet its long-term resource import and transport needs. This means greater capacity for coal imports on the western coast, more oil and natural gas terminals on the eastern coast, larger strategic reserves of oil, and greater inland freight and pipeline capacity. The government should monitor and annually report on the state of coastal and inland infrastructure, maintenance and construction requirements, and the adequacy and optimization of use. The report should be tabled before the Board of the Integrated Resource Corporation.

India will need to work with other countries in the region, which also face rising energy demands, for cooperative action in energy supply infrastructure. ONGC’s overseas arm, ONGC Videsh, has a stake in the gas pipeline from Myanmar into southwestern China. At their first dialogue on Central Asia in August 2013, China and India discussed the challenges of implementing the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. Investments in third countries could help companies from both countries develop experience in working together and gradually build trust. China and India could also envision a network of pipelines, which they could share to tap resources in Russia, Central Asia and West Asia. As these efforts grow, they could partially mitigate strategic concerns in both countries about the development of energy related infrastructure in their respective neighbourhoods (the Indian Ocean or the South China Sea).

 

Promote business models in decentralized energy: If we aim to bridge the electricity access gap by 2025 (even assuming all new households in the country already have access to electricity), it would mean bringing electricity to about 750 households every hour between now and 2025. Electricity through the grid, despite rural electrification schemes, has taken too long and is too unreliable to sufficiently meet the energy needs of millions of households. It will continue to expand in scope but more immediate and innovative measures are needed.

There is a strong case for promoting distributed energy infrastructure through a blend of different renewable energy sources and via smart microgrids. This will help to reduce the load on the main grid, offer energy access solutions to those without basic forms of modern energy, and create opportunities for productive uses of renewable energy (such as in small agricultural operations, remote telecom infrastructure, schools and hospitals, etc.). Further, distributed energy, if supported by strong R&D efforts (as is evident in other major economies), could lower the risks for critical infrastructure should the grid collapse or come under attack of any form.

India already has at least 250 firms providing decentralized energy services, each experimenting with different business models: selling products like lanterns, installing home systems (solar panels, biogas plants), or developing microgrids. Indian firms and social entrepreneurs could develop business models for off-grid generation and distribution of electricity and other forms of energy in Africa, Southeast Asia and remote regions in China, which have struggled to get connected to the grid. Meanwhile, China also has some of the largest programmes for clean cookstoves, an area of particular interest to India given that traditional biomass still accounts for 33% of India’s primary energy. Chinese firms could be encouraged to establish manufacturing facilities in India, to counter opposition within some quarters about dumping of renewable energy products. Collaboration with the United States is also possible where federal funding has been directed towards energy storage technologies, which would be critical for both grid stability as well as off-grid energy technologies.

India must recognize that a largely supply focused approach to energy and resources will be self-defeating. India neither has the infrastructure and policies at home to attract significant investment in energy and resources nor the financial resources to outbid others in overseas markets. Energy efficiency will be a partial response to demand pressures. Energy intensity has gradually eased in manufacturing, falling by about 55% during 1992-2007. Efficiency gains are projected to continue to improve, in part thanks to the Perform, Achieve and Trade (PAT) Scheme, although aggregate demand is expected to increase rapidly.

 

Establish a business case for resource efficiency: A business case for resource efficiency has to be made central to India’s resource strategy. For instance, CEEW’s calculations for the cement sector (a significant source of greenhouse gas emissions) shows that a range of energy efficiency and emissions reduction measures (such as using refuse derived fuel from municipal waste) could save between now and 2050, 600 million tonnes of coal, 550 billion units of electricity (about half of current production), and 3.4 billion tonnes of CO2 (more than half of annual emissions). And these measures give positive economic returns to businesses. The National Water Mission has set a target of 20% increase in efficiency of water use with the largest returns on investment likely to come from agriculture. Our calculations show that replacing half of India’s 10 million diesel pumpsets with solar ones could save 10 billion litres of diesel annually, while giving a boost to entrepreneurs.

India has an especially strong interest in well functioning commodity markets. Otherwise it would remain vulnerable to supply shocks over which it has little control. The immediate global governance priority for India relates to energy. India’s participation in energy regimes is limited – observer status at the International Energy Agency, not a member of the APEC Energy Working Group, recent observer status in the Arctic Council. It has historically relied on bilateral relations with oil producing states to fulfil its energy needs with the consequence that it is overly reliant on West Asian sources.

 

Create an Indo-Pacific Forum for coordinated action on energy: India should promote a regional energy order (not necessarily a formal regime), the Indo-Pacific Forum. The first task of the Indo-Pacific Forum (IPF) would be to increase transparency in energy markets with regular information on oil and gas purchases, long-term contracts and spot market prices. Second, the IPF would facilitate discussions on how each member country’s strategic reserves could be used to instil confidence in energy markets to mitigate short-term supply shocks. Third, by offering an open membership platform, the IPF would attract other second tier but rapidly growing energy consumers and collectively press for a reduction in premiums charged on energy supplies to the Indo-Pacific region. Fourth, it could discuss protection of key energy supply routes (via land and sea). Fifth, in a more institutionalized form, it could arbitrate on energy related disputes and protect overseas investments. The IPF would also be a way to balance China’s unilateral resource acquisition strategy within a regional setting. In the absence of a rule-bound system, India would struggle to single-handedly counter Chinese resource nationalism.

 

Find new allies in climate negotiations: Thanks to the resource nexus, all resource demand pressures converge through the impact on global climate. From a global resource demand perspective, India must emphasize basic needs against mercantilist negotiating positions. It has more in common with smaller developing countries than China in climate negotiations. For other major economies, mercantilist interests predominate (such as finding new markets for clean technologies). India, too, needs technologies and markets. But its primary interest is to ensure that its development needs are not compromised in a global atmospheric space carved up by America, China and Europe. India needs to find new allies in climate negotiations on an issue by issue basis. In addition to climate negotiations, India could also make this a central theme around which to build momentum for its G20 presidency.

The priorities outlined above – an Integrated Resource Corporation, joint bidding, supply infrastructure, decentralized energy, resource efficiency, an Indo-Pacific Forum, and innovative climate diplomacy – will require dedicated attention from the new government. The mantras of access, efficiency and externalities could help it to define its targets and assess India’s incremental performance towards greater resource security.

 

* The author thanks the Rockefeller Foundation’s Bellagio Center, where he was Resident Fellow and developed some of the ideas presented here.