In a world bound to the grip of fossil fuels, India has taken steps toward a different path. With a bold net-zero target set for 2070, the nation is reimagining its approach to energy. As noted by the Asian Development Bank in its recent Asia-Pacific Climate Report, India is shifting its focus from an unsustainable dependence on fossil fuel subsidies to fostering clean energy. Guided by a “remove, target, and shift” strategy, India steadily whittled down its fossil fuel support, opening doors to new investments in solar power, electric vehicles, and a stronger energy grid. India’s resolve in reforming fuel subsidies has proven transformative, slashing subsidies by a striking margin between 2014 and 2018.
This shift was no small feat. It was achieved through careful steps, including the gradual phasing out of petrol and diesel subsidies from 2010 to 2014, followed by measured tax hikes on these fuels up to 2017. These moves, though bold, were made to create fiscal breathing room for renewable projects, allowing the government to channel funds into clean energy initiatives at an unprecedented scale to shift toward a more resilient energy future. The Asia–Pacific Climate Report which is a new knowledge initiative from the Asian Development Bank (ADB) underscores the effectiveness of India’s “remove, target, and shift” approach in reducing fiscal subsidies in the oil and gas sector by 85 per cent. The findings also reveal how strategic tax measures, including the cess on coal production, have funded renewable energy projects and infrastructure improvements.
Overall, these insights illustrate India’s commitment to transitioning toward a more sustainable energy future while addressing the challenges of climate change. Since 2010, India has steadily reformed its fossil fuel subsidies, adopting a “remove, target, and shift” approach. This structured approach involved carefully adjusting retail prices, tax rates, and subsidies on select petroleum products, which collectively reduced fiscal subsidies in the oil and gas sector by 85 per cent, from a peak of $25 billion in 2013 to $3.5 billion by 2023. Significant reductions in fossil fuel subsidies and innovative taxation measures supporting clean energy projects exemplify the nation’s proactive strategy.
A significant step in this journey was the gradual phasing out of petrol and diesel subsidies, coupled with incremental tax hikes. These reforms created fiscal space for greater government support in renewable energy initiatives, electric vehicles, and critical electricity infrastructure. From 2014 to 2017, tax revenues were further boosted by rising excise duties on petrol and diesel, implemented strategically during a period of low global oil prices. The additional revenues were then redirected toward targeted subsidies that expanded access to liquefied petroleum gas (LPG) for rural communities, addressing both environmental goals and social welfare. India’s fossil fuel subsidy reforms mark a decisive shift, channelling resources toward sustainable energy and laying the foundation for cleaner energy alternatives.
