India Continues Overhauling its Energy Economy: WisdomTree India Earnings Fund (EPI)

India is suffering from rising oil import bills, which has put a huge strain on the Indian economy. It’s well known that India imports nearly 80% of its need for petroleum products and this import demand is likely to increase in the coming years.  Because of this Prime Minister Singh is championing the need to develop electric and hybrid vehicles to ease the oil needs of the transport sector. I find this assertion rich, no matter how true, coming from a man that presides over a national electrical grid so fragile it spectacularly failed all last summer.  So, while there is a need to adopt a transportation sector that is more diversified, how that is possible without a major overhaul of the fuel and electricity markets across the entire country is a serious question.

Transportation accounts for approximately 30% of energy consumption worldwide with 75% of that going to power road-going vehicles. Oil powers 95% of all road-going vehicles currently and 75% of future demand increases in petroleum will come from transportation according to the International Energy Agency. It is India and China who are expected to contribute to the major part of this surge in the global demand for Oil.

The National Mission for Electric Mobility (NMEM) was recently launched by Indian Prime Minister. The purpose of this mission is national energy security, mitigation of the effect of vehicles on the environment and growth of domestic manufacturing capacities. The government is billing the NMEM as an important step in improving the future of the Indian economy.  For investors this means that the NMEM will have a large impact on where government funds will flow over the next few years.

I would look for Toyota Motor Corporation (NYSE:TM) to make a big push for market share over time for lower-cost hybrids into this market as it did not, like Honda and Suzuki, invest heavily in the unsustainable diesel boom.  India is a market that Toyota is targeting for expansion and the NMEM is a perfect opportunity for it to achieve its goal of generating 10% of its total revenue from India by the end of the decade versus the ~1% the country generates now.

India’s oil imports rose 40% to a record $140 billion in 2011-12, which was not at all helped by a 20% devaluation of the Rupee but so much of that is due to an unsustainable subsidization of fuel use created by a budget-destroying subsidy of diesel fuel.  The government has tried to mask its inflation numbers and keep afloat its GDP growth rates by absorbing the expanding demand for oil by running deficits.  This scheme finally blew up on them in 2012 and now in 2013 finally has to bow to the economic reality that when you subsidize something you get more of it.