Revisiting the energy consumption and economic growth nexus in India under nonlinear and nonparametric framework

This study re-examines the relationship between energy consumption and economic growth in India using recent data. Motivated by the policy dilemma of sustaining high growth and while reducing carbon emissions, the study investigates whether India’s service-led economy can decouple from energy use or whether growth remains fundamentally energy-dependent. Unlike much of the existing literature that relies on linear models, this study employs nonlinear and nonparametric approaches. Specifically, the study applies neural network tests for nonlinearity, nonlinear methods to examine unit root in the series and cointegration relationship, nonparametric regressions including general additive models and random forests, and finally nonparametric models to establish causal direction. The results reveal strong evidence of nonlinearity in the data, a nonlinear cointegrating relationship between energy consumption and growth, and unidirectional causality running from energy to output, thereby supporting the ‘growth hypothesis’. The findings suggest that India’s growth trajectory remains structurally dependent on energy-intensive sectors, particularly through manufacturing sector, which contributes about 25 percent of GDP but nearly half of energy use. The study contributes to the literature by highlighting the limitations of linear models and demonstrating the value of flexible nonparametric econometric approaches in uncovering complex dependencies. The policy recommendations can be inferred from the current findings as such. India cannot sustain growth by restricting energy consumption. Instead, it must expand reliable supply, invest in efficiency, and diversify into renewable energy. Ensuring secure and cleaner energy for both industry and services is essential to maintain long-run growth while meeting its climate commitments.