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Last Updated: Thursday, 16 February 2006, 22:36 GMT
Soaring energy demand spark Indian fears
By Karishma Vaswani
Mumbai business correspondent, BBC World Television

Buying a new car in India is an auspicious event.

It is accompanied by much fanfare, pomp and ceremony, and for many Indians it is also accompanied by prayers at a Hindu temple, to ask the Gods to bless the vehicle with safe journeys and accident free drives.

Man praying for car
Rising car ownership has boosted energy demand

And since more than a million cars were bought in India last year, Hindu temples have been pretty busy.

More and more Indians are able to afford a car now, as their salaries have risen along with the Indian economy's soaring growth.

Foreign and domestic car firms have been ramping up capacity to meet that demand.

Korean car maker Hyundai says India is one of its fastest growing car markets and is planning to double its production here - in part because its cars are seen as a status symbol in many of the country's top cities.

Ford too is seeing growth in India, having become the fastest growing automotive firm in India in the month of January, beating General Motors, and domestic auto producer Maruti Udyog.

Nation of savers

Frenzied domestic demand is keeping machines at Mahindra & Mahindra's auto manufacturing plant just outside of Mumbai busy.

We used to be a nation of savers, but now we're willing to spend
Dr Pawan Goenka
President of Mahindra & Mahindra's auto sector

Thousands of workers assemble, build and design vehicles here daily, to keep up with the explosive needs of Indian consumers and Indian industry.

Dr Pawan Goenka, president of Mahindra & Mahindra's auto sector, says there are a few key reasons behind the strong demand for consumer items like cars in India.

"We've got a much stronger economy in comparison to 10 years ago. We're growing at 7-8%, and that's made people confident about spending their money.

"The second reason is that we've not got better financing for cars [and] low interest rates.

"Then there's the fact that there are so many more car models to choose from."

Five years ago, there were only a handful of cars available to buy, whereas now there are dozen, Mr Goenka points out.

"And, of course, there's also been a shift in the mindset for many Indians," he adds.

"We used to be a nation of savers, but now we're willing to spend."

Big challenge

Consequently, India's car market is set to grow by 10% this year.

In turn, this has boosted demand for petrol, which - when combined with industrial demand - has sent demand for energy soaring.

India imports almost three quarters of its energy to meet the demands of its population of more than a billion people.

This proportion is set to rise as energy demand is expected to double in the next five years.

Man cooking
Many in India rely on subsidised kerosene for cooking

By 2020, the country may have to import all of its energy needs.

This development poses a big challenge for India, and for its oil companies.

Oil marketing firms like Indian Oil, one of India's biggest oil companies, is in the business of acquiring oil assets overseas, and selling the products in India.

"It's a big challenge ahead," says Sarthak Behuria, chairman, Indian Oil.

"India has to go overseas to find oil.

"The demand is there - we have one of the fastest growing economies right now in the world - but pricing is an issue we must address. Pricing of oil overseas in the international markets is volatile and that's a difficult challenge."

India is already looking overseas for energy.

The country has been in talks with Iran and Pakistan to build a $17bn (9.8bn) natural gas pipeline from Iran.

Talks are expected to resume between the three nations next week.

But the deal may run into some trouble: The US is opposed to the project because of Iran's participation.

The gas pipeline deal, if it did go through, could be crucial for India's economic development.

India has to buy most of its energy from overseas and the government subsidises most of the oil used by consumers in India.

Had it not done so, oil would have been too expensive for people to buy.

Kerosene, used by many poorer families in India for cooking and heating their homes, is sold at prices well below market price and the government has vowed to maintain low kerosene prices.

But as global oil prices have been soaring in recent months, and as India's 3% share of global oil demand is set to rise to 10% by 2030, the government may find it an expensive undertaking.

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