Abstract
Numerous policy reforms over the past 20 years have shifted India’s energy sector from a predominantly government-owned system towards one based on market principles, offering a more level playing field for both public and private sectors. Political complexity and a tradition of socialist economic practices, however, hindered the complete liberalization of India’s energy sector, leading to sub-optimal outcomes. In this sense, the huge blackouts that occurred in northern India in July 2012 could be seen as a consequence within the framework of incomplete market liberalization. The goal of providing energy access to the entire population led to well-meaning policies designed to protect the poor, but resulted in a system of untargeted producer and consumer subsidies that prevent a more thorough implementation of a well-functioning and financially sound energy sector.
 
In combination with an industrial policy that aims to protect the indigenous manufacturing industry through import substitution, India now finds itself trapped halfway along the transition towards an open and well-performing energy sector. India’s energy sector is increasingly unable to deliver a secure supply of energy amid growing demand and fuel imports. In conjunction with a rising subsidy level and systemic failure to ensure proper revenue collection along the value chain, the financial capacity of energy sector players is significantly undermined. Lack of sufficient capacity to make timely and adequate investments gives reason to fear that India is heading towards energy crises. Increasing import dependency exposes India to greater geopolitical risks, fluctuating world market prices and intensifying international competition. Indian energy policy cannot be set in isolation and needs to account for rising global interdependence, while simultaneously communicated appropriately to the public and reflected in policy debates.
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