Empirical insights into India's energy demand: unveiling elasticity dynamics for strategic policy initiatives

Policymakers and stakeholders can use insights from price elasticity and income elasticities of energy demand to devise targeted interventions that promote energy efficiency, reduce reliance on fossil fuels, and drive the transition to more sustainable and resilient energy systems. This study seeks to examine how changes in income elasticity and price elasticity affect energy consumption over time using the ARDL model and a time-varying parameter technique, state-space Kalman filter. The study's findings reveal that energy prices have a negative and significant impact on energy consumption, whereas GDP per capita and population growth have a positive and significant impact on energy consumption in both the short and long run. The findings underline the importance of economic growth and increasing population in driving growing energy demand in India, which is consistent with the country's energy-intensive development aspirations. The time-varying analysis shows that the price elasticity of energy consumption follows a U-shaped pattern across time. However, from the onset of the new millennium decade, the elasticity of energy consumption with regard to its price has continually decreased, reaching - 0.54 by 2020. Furthermore, the findings imply that the income elasticity of India's energy demand has stabilized around unity, indicating that the country is currently near the middle of the energy intensity-GDP inverted-U trajectory. Given these evolving elasticities, policymakers should take a flexible and forward-thinking strategy to achieve optimal energy consumption levels.