15 June 2009

GPPi publishes policy paper on energy subsidies in India

GPPi has published a new policy paper entitled "The Mother of All Corruption: How Energy Sector Subsidies Undermine Good Governance and Energy Security". The paper, which focuses on the effects of energy sector subsidies in India, was authored by Dr. Bhamy Shenoy, senior advisor to the Center for Energy Economics at the University of Texas in Austin, and is being published in the Policy Paper series of GPPi’s Global Energy Governance Project.

Resource-poor developing countries such as India do not only have to allocate a significant percentage of their export earnings to import energy, but they also suffer from what may be called the “curse of energy subsidies”. To this day, many developing nations feature extensive domestic oil and gas sector subsidy systems that were originally designed to protect the poor against higher energy prices and strong price fluctuations on international oil and gas markets. The impact of these domestic subsidy schemes, both on promoting energy security for the poor as well as on the political fabric - through rampant corruption at all levels of society, such as in India - has thus far not been comprehensively addressed.

Building on the specific case of India, this paper analyzes the political-economic effects of domestic oil sector subsidies on developing economies and concludes that, in the case of India, the domestic subsidy system does not accomplish its stated objectives as the poor in India do not profit from the scheme. Instead, the paper argues, the existence of the subsidy systems has provided ample opportunity for rampant corruption that has the potential to undermine the social and political fabric in India.

The paper closes with a number of concrete policy recommendations on how to address this problem, both at the national as well as at the international level.

To download the paper, please click here.

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