How India Withstood the Crisis in West Asia

UPSC Syllabus: Gs Paper 3- Indian economy and infrastructure

Introduction

India has historically faced economic instability whenever global oil prices increased sharply because it imports nearly 90% of its crude oil and depends heavily on the Gulf for oil, gas and fertilizers. The West Asia crisis again raised fears of inflation, fuel shortages and pressure on the economy. However, unlike previous crises, India managed the disruption effectively through strategic planning, diversified energy supplies, strong diplomacy and coordinated governance, demonstrating greater energy resilience than expected.

India’s Response to the Energy Shock

1. Managing a High-Risk Energy Crisis: The Strait of Hormuz crisis exposed India to major risks because of its dependence on imported crude oil and LPG. Rising freight charges, shipping risks and higher crude prices increased the possibility of an energy and economic shock.
2. Preventing Inflation and Supply Disruptions: The government’s immediate priority was to prevent higher global oil prices from causing inflation and fuel shortages within the country. Continuous monitoring and supply management ensured that essential petroleum products remained available.
3. Containing Petrol Price Increase: India limited the increase in petrol prices to 7.5% during the crisis. This was much lower than Germany (14%), the U.K. (19%), the U.S. (45%), Pakistan and the Philippines (over 50%), and Myanmar (almost 90%).
4. Limiting Diesel Price Rise: Diesel prices increased by only 8% in India, while the UAE recorded an increase of nearly 85%. This reflected India’s effective retail fuel price management despite higher global crude prices.
5. Protecting LPG Consumers: India imports nearly 60% of its LPG requirement, yet a domestic LPG cylinder remained available at ₹942, while Ujjwala beneficiaries paid ₹642. These prices remained lower than those in Pakistan, Nepal and Sri Lanka, and much lower than in the U.S., Australia and Canada.
6. Absorbing the Cost Instead of Passing It On: Public sector Oil Marketing Companies (OMCs) absorbed much of the global price increase instead of transferring it to consumers. They incurred ₹74,781 crore in losses on petrol, diesel and LPG sales up to June 30, helping protect household budgets.

Managing Energy Security and Economic Stability

1. High Dependence on Imported Energy: India imports nearly 90% of its crude oil, making it highly sensitive to disruptions in global energy markets. Dependence on Gulf countries for oil, gas and fertilizers further increased this vulnerability.
2. Economic Risks from Global Disruptions: Higher crude prices, rising freight costs and shipping delays had the potential to increase inflation, widen the import bill and create uncertainty in the economy. The crisis also revived memories of the 1973 oil shock and the 1991 balance-of-payments crisis.
3. Maintaining Macroeconomic Stability: Despite global pressures, inflation broadly remained within the Reserve Bank of India’s (RBI) target band. India also continued to remain the fastest-growing major economy, showing that external shocks did not derail overall economic stability.
4. Balanced Energy Management: The government followed a calibrated strategy that balanced consumer protection with macroeconomic stability. It avoided sudden fuel price increases while ensuring uninterrupted energy supplies across the country.
5. Diversified Crude Supplies: India reduced dependence on a single source by diversifying crude oil imports from different regions. This flexibility helped manage supply disruptions without creating major shortages.
6. Strategic Inventory Management: Careful inventory planning and coordination with public sector energy companies ensured continuous availability of petroleum products. This reduced the impact of temporary disruptions in global supply chains.
7. Prudent Fuel Price Management: Retail fuel prices were adjusted carefully instead of following every increase in international crude prices. This helped moderate inflationary pressure and protected consumers from sudden price shocks.
8. Strong Domestic Growth Drivers: Strong domestic demand, public investment and expanding manufacturing supported economic activity during the crisis. These factors helped the economy absorb external shocks more effectively.

Factors Behind India’s Energy Resilience

1. Strategic Diplomatic Partnerships: India treated diplomatic relations as an important part of energy security. Decades of engagement with Iran and Gulf countries kept communication channels open even during the peak of the crisis.
2. Support from Energy-Producing Countries: Iran facilitated the movement of Indian ships, while Gulf producers continued supplying oil despite regional tensions. These trusted partnerships reduced the risk of supply disruptions.
3. Diversified Energy Supplier Base: India expanded energy partnerships beyond the Gulf to Russia, the U.S., Africa and Latin America. This reduced dependence on a single region and improved flexibility during geopolitical crises.
4. Long-Term Energy Planning: Investments made over the past decade strengthened India’s ability to absorb external shocks. Higher ethanol blending, a growing renewable energy base, larger strategic petroleum reserves and stronger refining capacity improved energy resilience.
5. Institutional Learning and Preparedness: India’s response reflected years of policy learning rather than short-term crisis management. Long-term planning enabled the country to respond quickly without major disruptions.
6. Whole-of-Government Coordination: Different ministries and national institutions worked together instead of functioning separately. This coordinated approach helped manage logistics, monitor risks and maintain uninterrupted energy supplies.
7. Preparedness Over Panic: The crisis showed that resilience comes from years of preparation rather than emergency decisions. Strategic foresight enabled India to handle the disruption more effectively than expected.

Government Initiatives and Institutional Coordination

1. Integrated Government Response: The Ministry of External Affairs, Ministry of Petroleum and Natural Gas, Ministry of Ports, Shipping and Waterways, the Indian Navy, the National Security Council Secretariat, State governments, municipal authorities, oil marketing companies and industry associations worked together to minimise disruptions and maintain energy supplies.
2. Expansion of Gas Infrastructure: Continuous investment expanded India’s City Gas Distribution (CGD) network from 55 geographical areas in 2014 to more than 300. This increased access to cleaner fuels and improved energy security.
3. Promotion of Piped Natural Gas (PNG): The government encouraged the use of PNG wherever pipeline infrastructure was available. This reduced dependence on LPG and provided greater flexibility during supply disruptions.
4. Support for Exporters: Exporters affected by higher freight charges, insurance costs and shipping delays received liquidity support, logistics facilitation and simplified customs procedures. These measures helped businesses continue serving international markets.
5. Strong Export Performance: Government support enabled exporters to maintain production and shipments despite global uncertainty. As a result, merchandise exports grew by 16% during April–May FY27.
6. Financial Stability Measures by the RBI: The Reserve Bank of India (RBI) maintained comfortable liquidity, stable financial markets and a well-capitalised banking system during the crisis. These measures reduced financial uncertainty despite global volatility.
7. Strengthening External Resilience: Forex swap facilities, support for foreign currency deposits by Non-Resident Indians (NRIs) and rationalisation of taxes on Foreign Portfolio Investors (FPIs)strengthened India’s external sector and improved its ability to manage external shocks.
8. Coordinated Fiscal, Monetary and Administrative Action: Fiscal policy, monetary policy and administrative measures complemented each other throughout the crisis. This coordinated response preserved macroeconomic stability even when many countries faced severe inflation, fuel shortages and supply-chain disruptions.
9. Support for Indigenous Innovation: Scientists at CSIR’s National Chemical Laboratory (NCL) developed indigenous technology to produce Dimethyl Ether (DME) as an alternative to LPG. This can reduce dependence on imported cooking fuel in the long run.
10. Expansion of Refining Capacity: Continuous investment strengthened India’s refining capacity, enabling refineries to process different grades of crude oil without affecting fuel quality. This improved supply flexibility during disruptions.

Way Forward

1. Continue Diversifying Energy Sources: India should further expand energy partnerships across different regions to reduce dependence on any single supplier and strengthen supply security.
2. Strengthen Strategic Energy Capacity: Continued investment in strategic petroleum reserves, refining capacity, renewable energy, gas infrastructure and alternative fuels will improve preparedness against future crises.
3. Deepen Diplomatic Engagement: Strong and stable relations with energy-producing countries should remain a priority. Active diplomacy can help secure reliable supplies during periods of global uncertainty.
4. Promote Technological Innovation: Greater support for indigenous technologies such as DME and cleaner energy solutions can reduce import dependence and strengthen long-term energy resilience.
5. Maintain Institutional Coordination: The coordinated approach among ministries, financial institutions, security agencies and industry should continue. Strong coordination can ensure faster responses to future geopolitical disruptions.

Conclusion

India’s response to the West Asia crisis showed that strategic planning, diversified energy supplies, strong diplomacy, technological capability and coordinated governance can reduce the impact of global disruptions. Years of preparation helped India protect consumers, maintain economic stability and strengthen energy security. This resilience can become an important pillar in achieving the vision of Viksit Bharat.

Question for practice:

Discuss how India withstood the West Asia crisis despite its high dependence on imported energy, and examine the key factors that strengthened its energy security and economic resilience.

Source: The Hindu