Technological change and energy consumption in India: a decomposition analysis

Increasing demand for energy from its fast growing economy notwithstanding, India is committed to reduce energy consumption on account of the concerns for climate change. It is often held that growth in energy demand could be moderated through autonomous changes in production technology. This paper analyses the sector-wise changes in production technology and its effect on the demand for direct and embodied energy by using structural decomposition analysis in a constant price hybrid Input--Output framework. Results support the hypothesis that changes in production technology contribute significantly to reduce additional energy requirements of the economy. The differences in magnitude, direction and rate of change in production technology between energy and non-energy inputs highlight their varying contributions to energy savings. The significant efficiency impact of embodied consumption in non-energy sectors highlights the scope of technological changes in these sectors, which has a cascading effect in the production chain. Therefore, the focus of policies shall be on lowering the consumption of embodied energy.