India’s Energy and Fiscal Transition

Abstract This paper looks at India’s expected energy transition towards a low carbon future and studies how government revenues from fossil fuels will be affected over the next two decades. It takes the International Energy Association (2021) scenarios for India and studies how both tax revenues and non-tax revenues for national (central) and sub-national (state) governments would be affected. The study finds that under fairly standard assumptions on growth, prices, and taxes, there would be continued growth in revenues from fossil fuels till 2040; however, as a share of the GDP and overall government budget it would fall significantly and this would impose challenges for both the state and central governments in India. Moreover, since the central government is the greatest beneficiary of fossil fuels, it would face the brunt of the pressure. The paper also briefly discusses the possible impact of net zero and carbon taxes if India were to take that route, as well as how subsidies are expected to impact and be impacted by such considerations.