Determinants of Energy Intensity in Indian Manufacturing Industries: A Firm Level Analysis

Abstract

The demand for energy; particularly for commercial purposes, has been growing rapidly with growth of the economy, changes in the demographic structure, rising urbanization, socio-economic development, and the desire for attaining and sustaining self-reliance in some sectors of the economy. Energy intensity of Indian industries is among the highest in the world and specifically the Indian manufacturing sector is the largest consumer of energy sources. This study attempts to analyze the determinants of energy intensity of Indian manufacturing firms using data from the PROWESS database of the Center for Monitoring Indian Economy (CMIE) for the period 2000-2008. The results of the econometric analysis suggest a non-linear (U shape) relationship between energy intensity and firm size, implying that both very large and very small firms tend to be more energy intensive as compared to the medium size firms. The analysis also highlights that, foreign owned firms are less energy intensive as compared to the domestic firms. Further, technology imports are found to be important in contributing to the decline firmlevel energy intensity. The paper also identifies that there is a sizable difference in energy intensity between energy intensive firms and others. In addition, the result also shows that younger firms are more energy efficient as compared to the older firms.