New Delhi: The World Economic Forum has said costly and inefficient subsidies are damaging the Indian economy and emphasised on the need for more transparency in the Indian energy market to attract investments.
"Costly and inefficient subsidies are damaging the economy. The energy market must be made more transparent and efficient to attract foreign and private investment," the report titled 'New Energy Architecture: India' said.
This would require the removal of subsidies and increased separation between the government and state-owned companies, added the report prepared by WEF in partnership with Accenture.
The WEF has also underlined the government's role in creating a strong, stable and transparent policy framework for the energy market.
"This will require strong political leadership to manage the effective removal of subsidies and enable the benefits from increased private sector participation to be fully passed onto the public," it said.
Even though, some progress has been made in liberalising the country's energy sector, industrial energy costs are among the highest in the world.
Pointing out that India's energy sector is heavily subsidised, the WEF said the resultant market distortions lead to lack of competitiveness in the industrial sector and inefficiencies in use by residential and agricultural sectors.
Residential and agricultural electricity, diesel, kerosene and LPG prices are heavily subsidised, placing a burden on public finances and leading to inefficiencies in use and little motivation for private companies to invest in the industry, the WEF said.
To achieve an economic growth of 9 percent, estimates show the country's energy supply would have to increase 6.5 percent per year.
Mirroring the tremendous economic growth, India's energy demand rose 95 percent between 1990 and 2008.
Presently, India is the world's fourth largest energy consumer and the country is expected to reach the third position by 2020, just behind the US and China.
According to the report, the inability to meet energy demand could be the single biggest constraining factor to India's growth story.
"The effective, transparent and sympathetic dissemination of information will be central in developing India's energy architecture, from communicating the removal of subsidies to the need to consume energy more efficiently.
"Honest and upfront communication will also be essential to gaining the involvement of international and private energy companies in the development of India's hydrocarbon resources," it said.