Latest / Look Forward / India Forward: Navigating Global Shocks and Energy Security | Look Forward Ep. 35

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India Forward: Navigating Global Shocks and Energy Security | Look Forward Ep. 35 · Look Forward

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Hello and welcome to the Look Forward podcast, powered by the S&P Global
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Institute, the platform for enterprise thought leadership across S&P Global.
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I'm Aries Poon.
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I'm leading the analysis team for Asia Pacific and Latin America in
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the Market Intelligence division, and I will be your host today.
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Markets are moving faster, risks are shifting, and
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decision makers need foresight.
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In this podcast, we bring you expert perspectives from across S&P Global on
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the macroeconomic, market, energy, and technology forces shaping what comes
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next and helping you navigate uncertainty and look forward with confidence.
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Today, we are looking at India at a moment of significant global disruption.
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The ongoing Middle East conflict has triggered energy shocks,
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supply disruptions, and financial volatility, but also forced India
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to rethink how it manages risk, growth, and long-term strategy.
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To help unpack all of that, I'm joined by two colleagues today, Deepa Kumar
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from the Market Intelligence division and Gauri Jauhar from the Energy division.
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Deepa and Gauri, great to have you.
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To start, Deepa, how significant is the current shock for India, and how does
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it compare to previous external crises?
1:28
Thanks for your question, Aries.
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And of course, the context of this question is very much there in the
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fourth edition of India Forward that we released in May, which is
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India Forward Strategic Imperatives.
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The, the whole edition, in fact, was around this question is,
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what kind of a stress test is the Middle East war for India?
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And it's actually a pretty rounded, it's a pretty holistic sort of shock for India.
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It's, it's the most, uh, so to speak, uh, important shock that we've noticed
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within India since Russia's invasion of Ukraine in twenty twenty-two.
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There are multiple transmission channels for India that have come through.
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First is, of course, its dependence on the Middle East.
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The fact that it is dependent on a particular region where the war is
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happening for energy sources, more than fifty percent of energy sources.
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Gauri will di-dive into that much, I'm sure.
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Um, even investments, the Middle East has become a bigger trade and investment
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partner for India in recent years.
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And of course, even remittances, which forms an important part, almost three
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point five percent of Indian GDP, of which a very big concentration is from the Gulf.
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So there are these multiple layers at which the Middle East war is
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starting to show in for India.
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Some of the supply disruption also that we're seeing, right?
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Like it's not just oil and gas, but it's also fertilizers on which India
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is dependent from the Middle East.
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And then there is this, this kind of like wider question of what does the
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Middle East war also stress test in terms of India's geopolitical posture.
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So a lot of the countries that are claimants in this war, India is trying to
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be friends or trying to show that it has strategic partnerships with all of them.
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So in terms of the "balancing act" of Indian foreign policy that
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everyone looks at, which is, you know, the strategic autonomy question
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or the multi-alignment question, this is really a test even of that.
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How is it different from the previous crisis?
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And I'll stop here quickly, and Gauri, maybe you should weigh in as well,
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is it's a lot more multi-sectoral and it's, it's not just about supply,
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it's also about prices, it's also about the financial risk, it's
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also about the macroeconomic risk.
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If you look at the global financial crisis, little isolated.
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It was just about that.
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If you look at COVID, it was widely much more global.
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So it's not just about how countries are exposed themselves or not.
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And lastly, of course, India itself has become much more integrated
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into the global economy now than it was, say, even a few years ago.
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So the transmission channels are really showing, and that's what
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we're trying to track in the India Forward journal and moving forward.
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Gauri, quickly over to you.
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Why don't you-
3:59
Uh, yeah, absolutely, Deepa.
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I think, uh, you know, what you talked about, uh, this being, uh, the
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transmission coming through many layers is so apt, uh, because when we look at,
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uh, this is truly an unprecedented crisis.
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Because if you go back in history, you know, fifty-three years back in
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nineteen seventy-three oil embargo, it was about eight percent of global
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oil supply that was disrupted.
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Uh, but when we look at the situation today, it is, uh, about sixteen percent
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of global oil supplies have been impacted, and the customers who are impacted are
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l- are more towards Asia, and of course India becomes very central in that.
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Um, and, uh, you know, the Middle Eastern hydrocarbon molecule, as
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we argue, uh, with, um, my other co-authors, uh, Pulkit Agarwal, Dr.
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Atul Arya, and Dr. Rajiv Lalla, and Pedan Patil, um, is that the Middle
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East, uh, hydrogen, uh, hydrocarbon mo-molecule is often the most
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economically efficient molecule because of shipping distances, which has been
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embedded into the Indian energy system.
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So what we see is that whether you look at oil, whether you look at LNG, um,
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there has been a significant dependence of about, you know, at least forty-five to
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fifty percent of India's oil imports, for instance, um, and a significantly greater
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amount of the, uh, LNG imports coming in of almost sixty, uh, odd percent.
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So, um, and a lot of these are based on, uh, long-term contracts, uh, and they
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also shoulder India's base oil demand.
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Um, so when you look at, you know, sectors like, uh, transport, sectors like where
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LPG is significant in the Indian economy, uh, for in terms of residential consumers,
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um, India still remains an oil economy, uh, despite all the progress that we
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have made, uh, um, you know, in our shift from fossil fuels in the power system.
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The transport system still, uh, uh, notwithstanding all the advances in,
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uh, EVs, um, still rests, especially when you look at, uh, long-haul
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trucking, diesel demand, it is all based, uh, really on, on oil.
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So I think that is where this, uh, crisis is very different.
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Uh, the search for alternatives is very real.
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Um, the search, uh, the, the, you know, the hawk-like look at, uh, what is
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happening on storage levels is a daily question now, um, because of this crisis.
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This has never happened before.
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And actually, despite the emerging stress, India has always been seen
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as a relatively resilient economy.
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So Deepa, what is holding up, and where are the cracks starting to show?
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And that's a good sort of segue point, right, Aries?
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Because especially, like, we had two shocks recently.
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One was COVID, and the second was Russia's invasion of Ukraine.
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India came through as the world's fastest growing major economy through all those
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periods, and that still continues.
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So it is still riding some tailwinds of how its growth is structured from some
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of these previous shocks and how-- from how economic policy has been tailored.
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And there are a couple of points there.
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One is, for better or for worse, the government is a huge driver of growth.
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So be it in terms of how the government is supporting with an economic stabilization
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fund right now, how the government has increased its sort of proportion of
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fuel and, uh, fertilizer subsidies, and also how the government is continuing to
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support infrastructure spending in India.
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So one is that is kind of continuing, and that is a buffer.
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And the second is we've seen that in the private sector, firms are being
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able to absorb the costs right now.
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We're not seeing… Of course, this is not to say that they may not pass through
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eventually, and that is the second half of the question that we're coming to, right?
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Which is what are the challenges.
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But those two things are still working out that, like, firms
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are able to absorb the costs.
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We've not yet seen them buckle because of it.
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And the second is the way India's economic model has been in the recent
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few years is, is the government has always been proactively involved
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in driving this growth story, and it's still very much present.
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In fact, they've stepped in quite proactively as soon as, as the crisis
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started Coming to the other side of where things are buckling, and this is where
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the fact that it's a global conflict or it's, it-- the fact that it, it has so
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many other transmission channels, right?
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You can't control everything from, like, simply having some
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of these domestic interventions.
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The biggest is, of course, the rupee.
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The rupee has fallen by more than 6% since the start of this, uh,
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since the start of this conflict.
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And as we highlighted in the paper, which is, of course, May, and we'll have to see
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how we update that going forward, we're expecting the rupee to, at best, go and
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settle somewhere at ninety-three versus the US dollar by twenty twenty-seven.
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So it's still moved from the baseline.
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So we are saying that there's almost no going back in terms of where
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the rupee was before the conflict.
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And that does show through in some of our other indicators in terms of inflation,
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which even because of low base effects of twenty twenty-five, is likely going
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towards a 5.1% number from a 2% number, which is a significant drag on prices.
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And there are these other factors of how India is expected to have a weak monsoon
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because of El Nino, and that then goes and has sort of an impact on the agricultural
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production, which is, is again, it's an important driver of the Indian economy.
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So these are some of the places where we're seeing growth feel some strain.
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It might show up again in how demand gets constrained because once
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supply side issues have started, demand constraint does start.
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And so this year, this fiscal that just got over, fiscal twenty twenty-five,
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India's growth has still been stable, 7.7%, and that's primarily
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a driver of the previous quarters.
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But the next year, which is fiscal year twenty twenty-six, we do think India's
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GDP growth falls sharply to 5.7%.
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And in fact, behind the resilience of growth is, uh, we're also seeing
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the policy responses, uh, evolving.
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So, uh, Deepa, how is India shifting from short-term stabilization
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to longer-term strategy?
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And this is something, Aries, you know, uh, I've been saying this since
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the start of, of… And, and Gauri must have heard me speak on this
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even in fr- with a few of the clients that we met in May in Delhi, right?
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Is, is we're talking about India looking at this as not just preparing
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for the current crisis, but also keeping an eye on the next crisis.
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Because that is just the nature of the way global conflict is evolving.
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That's the nature of the way global trade policy is evolving.
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That's the nature of the uncertainty that has come in with emerging technologies
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like AI, how you navigate those things, and what is the impact of that on the
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economy, energy, so on and so forth.
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So we're definitely seeing that India is now looking at it not just from just
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a short-term perspective, but also a medium-term and long-term perspective.
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Uh, one thing very briefly, and that is, of course, Gauri's domain, but that India
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does realize is its energy dependence is a big sort of headwind for it.
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And the energy dependence is not just about what you can or cannot produce
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domestically, but who your suppliers are.
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So to Gauri's point, right, like the fact that India has a major gas
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dependence, especially only on the Gulf.
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Over 90% of it comes from the Gulf.
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We're seeing that one of the long-term strategies that India is playing is
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really diversifying its contracts.
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So it's looking at some of these contracts coming from not just, you know, the
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Gulf anymore, but also regions like Australia, from the US itself, which is
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part of the India-US trade negotiations, and from other parts of the world.
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So those-- that kind of supplier diversification is
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exceedingly important for India.
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India is not alone in doing it, but one of the things that India is doing is ensuring
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that its supplier sort of, um, rota is very robust and does not necessarily
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look like what it's looking right.
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And there are a couple of other players where India is careful of this as well,
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China and the US both being involved.
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The other is the storage, is again, something technically speaking,
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Gauri would be much better and much more adept at speaking about that.
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But they now do think, and we say that in the third paper, which is Gauri's
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paper, that, like, you need a national storage policy, energy storage policy.
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We do see that there are expedited regulatory efforts for building up
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those storage capacity, for ensuring that there are strategic reserves
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engagements done, like Prime Minister Modi's visit to the UAE just last month.
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And we're also seeing the other parts of the infrastructure, like hastening
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up India's ports production, uh, ports infrastructure production,
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hastening up the shipbuilding yards.
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We are seeing regulatory changes that point to not something that
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India is hoping to scale and achieve in the next one year or two years.
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But if you stick with this policy through different political changes
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that are likely coming in the two to three years, it is about reorienting
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that medium to long-term strategy now
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So let's take a deeper look at, uh, the energy because, um,
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you know, it is clearly sitting at the center of the story.
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And, uh, let's turn to Gauri for a moment.
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So how has the shock in energy markets exposed structural
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vulnerabilities in India's system?
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Right.
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So the structural vulnerability, um, Aries, really stems from, uh,
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the dependence on the Middle East, uh, wherein, as I'd said before, uh,
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the Middle East, uh, molecule was embedded, is embedded and is the most
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economically efficient, uh, source of, uh, imported energy in India.
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Um, so again, going back to the numbers, you know, approximately s-sixty percent
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of crude oil and LNG imports and approximately eighty-five percent of LPG
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imports all come from, um, the Straits.
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So, um, and by twenty-thirty, something we've shared in the paper also is that,
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um, India will face an import dependency of ninety-four percent for crude oil and
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about sixty-five percent for natural gas.
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So the vulnerability, again, is linked to that overarching geographical
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dependence because of proximity, um, because of the routes, uh, shipping
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routes and, um, also long-term contracts.
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Um, I think where, uh, we see, uh, uh, the, the hope to out of this is
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that as, y-you know, India's economic might rises, even though, uh, as Deepa
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shared earlier, there would be, uh, because of the crisis, a moderation
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in the growth amo-- uh, growth as per we had, um, you know, shared, uh,
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earlier in terms of our GDP forecast.
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Uh, but the cost of supply disruption will also increase.
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So this will put, you know, a, a, a whole series of s-- It'll be like a domino
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effect that every sector within energy.
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Energy is a large value chain.
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If you go, um, you know, if you look at, uh, the upstream, the downstream,
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the midstream, and then you look at the whole power system as its own system.
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When you look at all these systems, there are changes that need to happen
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in each of these systems, uh, to, uh, cushion, um, any long-term, uh,
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near-term and long-term impacts.
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And, um, as Deepa had said earlier, uh, to, um, you know, make sure that
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we have a better baseline, uh, we are better prepared for the next crisis
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wherever and however it may happen.
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Uh, because as we're seeing, uh, the world is buffeted a lot more by, you
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know, what we call the black swans.
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We're just seeing them with too much frequency for different sets of triggers.
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So, Gauri, if diversification alone isn't enough, what does a more resilient energy
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strategy actually look like for India?
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Right.
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Um, so I think a more resilient energy strategy will have to start with looking
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at whatever is, uh, within the country's, if it's within our country's boundaries.
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Uh, that means what are all the resources that can be developed?
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Now, that means that, um, energy transition, uh, would need to move
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at the speed of energy security.
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It, it takes on the urgency of energy security.
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Um, what that means is that going into this crisis, we were already
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seeing Uh, a rapid pace of expansion in renewables, uh, from about, you
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know, uh, five gigawatts, uh, over a decade back to about 50 gigawatts we're
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expecting annually this year Uh, we do need to see that expansion, but that
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expansion being complemented by storage.
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So even if you're looking in renewables, you know, renewables is now, uh, having
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a new challenge, which is of AI, which is just gonna be a structural challenge.
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And with that structural challenge, uh, we will need more, uh, battery storage
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capacity, more pumped hydro, which is way more than the, uh, less than two
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gigawatt hours that we have currently.
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And that is where in the paper we argue for a comprehensive energy storage
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policy which goes across electrons and across molecules, uh, which sees, uh,
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literally, you know, by end use sector, what is the supply position, uh, what
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are the stocks available, and it'll be a stocks and flows exercise both.
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Um, so that'll have to be taken literally for aviation fuel, for LPG.
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Uh, so really a product level mindset has to come in from a more, you know,
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what is the crude storage capacity.
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Um, and, uh, I think one of, uh, the, uh, you know, what the crisis has also
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shown is that we need to relook at gas storage, um, as well more deeply, uh,
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beyond what is there in LNG storage tanks and beyond what is there in, uh, certain
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pilots which ha- uh, have been undertaken, um, uh, on a very selective basis.
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So, so I think it needs to have a much more coordinated view.
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Now, that said, I think one of the, uh, encouraging signs was that, um,
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there were transitions happening from LPG to natural gas within the crisis.
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So we saw three hundred and fifty new-- thousand new registrations
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of, um, uh, new gas connections which were waiting to be connected.
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Uh, but because of the LPG crisis, that was that final trigger which,
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which did make that happen, and they were, they were ready to be connected.
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Um, I think we will also see, um, more, um, push towards, um,
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things like coal gasification, um, uh, battery storage, uh, nuclear.
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We will also see carbon capture, uh, utilization storage
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systems being incentivized.
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Um, and I think going into this crisis, uh, the budget just a few weeks before
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the crisis unfolded, had already made significant, um, capital allocations
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towards it, uh, in the range of, uh, eight hundred to nine hundred percentage
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point increases from the prior year.
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So I think those are all great signs, uh, but a lot more holistic
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thinking and something which, uh, you know, my, uh, co-authors also
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mentioned, uh, uh, my co-author, Dr.
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Rajiv Lalla, he talked about how, um, you know, Indian NOCs, uh, have to
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probably move more from a faith in supplier strategy to more of a, um,
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more of a stake in supplier strategy.
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And, uh, my other co-author, Pulkit Aggarwal, also talked
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about, uh, how more flexibility in contracts has to be looked at.
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Um, and, uh, something, you know, I think Dr.
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Atul Arya always reminds us is that never waste a crisis because, uh, you know Um,
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the-- I think what is, um, what, what happens in a crisis, the dynamic of a
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crisis is that, um, there is a collapse.
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There's a, there, there's a push in the system to collapse and compress timelines.
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So short, medium term, long term doesn't mean anything if it's important
19:08
for, uh, long-term energy security.
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So I think that is where we need to ride that wave of this crisis.
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Beyond energy, we are also seeing changes in industrial and trade policy.
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Deepa, so how is India balancing self-sufficiency with global integration?
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This is a very important question, Aries, and before I answer the
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how, I'd just like to ground it in a couple of facts, in a couple of
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sort of contextual points for India.
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Uh, the first thing is this industrial and trade policy pivot kind of
19:40
did start before this conflict.
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It started, uh, well, for domestic reasons as well because the makeup of
19:47
the Indian economy and the balance of agriculture, manufacturing, and services
19:51
is such that, like, India is hoping that manufacturing and services in the coming
19:56
decades picks up a lot more weight, shared weight than it is right now.
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That's the first thing.
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The second thing is to Gauri's point itself, right?
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Like trade policy itself has changed so much.
20:07
Energy policy is also trade policy.
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Um, services policy is also industrial policy.
20:12
There's, there's a kind of a holistic way of looking at these things which
20:17
are also driving some of India's policy choices domestically, foreign
20:21
policy platforms internationally.
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And the third is just the point of how does India reorient administratively
20:30
within the country to be able to meet some of these goals.
20:33
Everything that Gauri mentioned and everything that we've spoken about is a
20:39
multi-ministerial, multi-geography kind of approach.
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So there's really a matrix that India is trying to or having to have to build here
20:44
to be able to answer these questions.
20:47
Now, coming to the how is India trying to do this is first is that India is looking
20:52
at it at both sides of the same coin.
20:54
Like self-sufficiency is one side of the coin and building those strategic
20:58
sort of options and building its kind of like diversification strategy of
21:02
is, is the other side of that coin.
21:04
And given how much reticence India had for foreign trade agreements, say, a few
21:10
years ago, even before in the, in the earlier terms of this very government,
21:14
it's actually changed in this, uh, in this term in the last few years.
21:18
So one of the most pronounced ways in which we are seeing India do something
21:22
like this effective trade policy and industrial policy is through
21:26
signing and is through negotiations of free trade agreements that India
21:29
has started, concluded, or is in the progress stage with multiple
21:34
economic blocks, trading blocks, and countries' economies of the world.
21:38
We've seen them come through with the UK, we've seen them come through with EU, with
21:41
Oman last year, and more are likely to come through in the next one to two years.
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So FTAs has kind of become a very important tool for India to be able
21:50
to do this, but what is included in the FTAs now is not just at what
21:55
duty is India importing a good or at what duty is India exporting a good.
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It now talks about environmental standards which feeds into the energy policy.
22:03
With EU, it also looks at exemptions for things like CBAM, so that India
22:08
is able to manufacture domestically and continue sort of building its, its
22:12
industrial policy in a way that does not contradict energy policy elsewhere.
22:17
It's also services-oriented because like I was saying, more than 38% of
22:23
India's remittances come from the Gulf region, so they're trying to ensure
22:25
that that also remains diversified.
22:27
So that is one sort of element of FTAs and how India is trying to do that.
22:32
The other, and we've seen it, it's kind of become the linchpin of industrial
22:36
policies, production-linked incentive services, is where in the sectors in
22:40
which India is basically, you know, something that like, uh, we, we studied
22:45
it in a very like import substitution, export promotion kind of framework.
22:49
It's a much more developed and enhanced version of that framework,
22:53
where basically India is saying, "Come manufacture in India, we give you a set
22:57
of subsidies." And they want to do them in sectors especially like smartphones,
23:01
semiconductors, solar PV and auto.
23:05
So these are to name a few.
23:06
There are of course a lot more.
23:07
But we're seeing that they are, they are building these in strategic sectors
23:11
where India feels you really need that balance between having domestic options,
23:16
having foreign options, but then also trying to become more of an exporter.
23:20
So how do you move from self-sufficiency at one end of the spectrum to become
23:24
deeply integrated in, in sort of the envi- the global environment a little
23:28
more at the other end of the spectrum?
23:30
So it's very likely that this policy path and this policy platform stays for
23:35
India, at least while we are looking at political continuity, um, going forward.
23:40
And the one last thing I'd say and which, you know, somewhere in my questions
23:44
that, that I missed saying, but it's an important indicator, is the level
23:49
of foreign investment in India and the challenge that, you know, either
23:53
we're facing with FBIs and, and how FTAs are resolving for that as well.
23:58
In fact, Gauri will remember from the India Forward Roundtable that, uh, we
24:02
were at in May, one of the discussions that did came through was like how
24:06
FTAs are also a channel for FDI.
24:08
So now the FTAs now in fact have investment commitments in them.
24:12
So we're likely to see more investment commitments also included in FTAs
24:16
going forward, which may start addressing some of the challenges
24:19
that we've spoken about so far, Aries.
24:23
Great.
24:24
And now we are coming to the final question for the episode,
24:27
which, uh, is for Gauri.
24:28
So if we take a step back, so to what extent India will be able to capitalize on
24:34
this moment to transform itself further?
24:38
Um, great question, uh, to end this, uh, lovely podcast with.
24:42
Uh, so I think, uh, you know, this crisis, uh, really provides an opportunity as
24:48
a catalyst, uh, to, to, you know, speed up the process, speed up whatever was
24:54
left, uh, whatever was left on the reform agenda and needed sort of those
24:58
connective tissue to make things happen.
25:01
Uh, it also acts as a mirror in terms of, uh, which are the areas
25:05
where, uh, a deeper push, uh, uh, a wider look ne-is needed.
25:10
And in our paper, we do argue for five immediate areas of action
25:15
which work across, uh, policy, operators, and regulation and works
25:21
across the energy value chain.
25:23
And they are, number one, supply security, so rapidly increasing supply of all secure
25:28
domestic supply sources, and really not holding back, whether it's oil and gas
25:32
production, biofuels, biogas, renewables, even geothermal, nuclear power.
25:37
Um, I, you know, I will say that, uh, just recently last week, there
25:41
was some excitement around Oil India, uh, having a sh- uh, some
25:45
find of gas, uh, potential for gas discovery, um, in the Andaman Basin.
25:50
So that is, uh, uh, you know, credit to, um, the Samudramantham program,
25:54
which the government has launched, uh, to deepen India's exploration push.
25:59
Um, diversity of supply, so securing access to oil and gas supplies, uh, less
26:04
affected by supply routes and geopolitics.
26:06
And Deepa had mentioned this earlier, how we've gone, you
26:09
know, to Australia, Latin America.
26:11
Argentina is also part of the oil, uh, supply mix today.
26:15
Um, and internationalization of Indian NOCs to get that stake in supplier
26:20
Uh, which my colleague Rajiv has, uh, has written about in the paper.
26:24
Um, flexibility for resilience to improve flexibility of contracts, um, refining
26:29
configurations, expanding shipping access, and enhancing the demand response, which
26:34
Pulkit has talked about in the paper.
26:36
And, um, deepening the upstream push, uh, really again, going back
26:40
to taking more stake in international supplies, but also making sure every
26:44
drop of hydrocarbon is explored, developed, and produced in India.
26:49
And finally, is what I argue in the paper for is, um, you know, a comprehensive
26:53
energy storage policy for reliability.
26:56
Um, you know, uh, if you look at many sectors in the economy, uh, you know,
27:00
we are looking at backup options, right?
27:02
Whether you look at, um, you know, backup infrastructure, backup.
27:05
So what is the backup?
27:07
I think that backup question has to be a question of markets and policy
27:11
through a comprehensive energy storage view, um, across electrons,
27:16
across molecules, but, but grounded in an understanding of end use.
27:20
Like what is the amount required for aviation?
27:22
What is the amount required for power?
27:24
What is the amount required for transport?
27:26
Um, so it's a sort of the next level of, uh, reform and the next
27:31
level of, uh, understanding on, on what will resilience really be.
27:37
Thank you, uh, Gauri, and thank you, Deepa, for helping us frame what
27:41
really matters as this plays out.
27:43
And the key message today is the current shock is forcing India to
27:47
rethink how it grows, how it secures energy, and how it positions itself
27:52
in a more fragmented global economy.
27:54
And in that sense, this may not be just about a test of resilience.
27:58
It could be a catalyst for transformation.
28:02
If you would like to dive deeper into our research and our blog post,
28:05
visit spglobal.com and explore our Look Forward Council resources.
28:11
You can also connect with Deepa and Gauri on LinkedIn.
28:14
Thanks for listening to the Look Forward podcast.
28:16
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28:21
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