An Indian-flagged tanker carrying crude oil that transited through the Strait of Hormuz, is seen docked in Mumbai.
| Photo Credit: AFP

Oil storage tanks and facilities of a Sinopec plant in Shanghai, China. Photo for representational purpose
| Photo Credit: Reuters

Rising geopolitical instability in West Asia is forcing a reassessment of how India’s macroeconomic strength is measured.

As of March 2026, this instability has translated into active macroeconomic stress. The rupee has depreciated to a record low of ₹95 per dollar, the Indian basket of crude oil hit $156.29 per barrel, and the Reserve Bank of India has deployed billions of dollars of foreign exchange reserves to contain volatility. In such conditions, strong quarterly GDP prints capture domestic activity but often overlook vulnerabilities linked to energy imports, shipping routes and fiscal buffers.

Against this backdrop, India enters the post-Budget season with a striking macroeconomic contradiction. Headline indicators remain robust: the State Bank of India expects Q3 FY26 GDP growth of about 8.1 percent, public capital expenditure is near 4 percent of GDP, and fiscal consolidation toward a 4.3 percent deficit by FY27 remains intact. At the same time, external buffers are weakening. Foreign exchange reserves have declined from recent highs to about $709.76 billion, while foreign portfolio outflows of over $8 billion following the onset of the conflict have intensified currency pressures.

Yet income dynamics are weaker. Real wages remain subdued, household liabilities have risen to roughly 41 percent of GDP, and private investment continues to lag the state’s capex-led expansion.

This divergence reflects a deeper shift in India’s fiscal architecture: revenue buoyancy is increasingly driven by transaction-linked taxation while expenditure tilts toward capital formation. In a stable global environment this model can sustain growth, but when energy markets become volatile, its durability depends on whether fiscal revenues, consumption and investment can withstand external commodity shocks.

Shifts in revenue structure

India’s revenue structure has been shifting in ways that matter more in a volatile global environment. Revenue receipts have risen from 8.5 percent of GDP in FY16–20 to about 9.1 percent in FY22–FY25 (PA), but the increase reflects recomposition rather than a broadening of income taxation. The Union Budget 2026–27 estimates gross tax revenue at ₹44.04 lakh crore, yet much of the buoyancy now comes from transaction-linked channels. GST collections reached ₹22.8 lakh crore in FY25, while levies on financial and cross-border transactions have also expanded.

Direct taxes typically expand when more workers move into stable paid employment. As a result, revenue growth increasingly depends on the volume of economic transactions rather than income deepening.

External shocks particularly energy price spikes that raise transport costs and compress household spending can quickly slow transactions. In such conditions, a fiscal model reliant on activity-linked taxation becomes more sensitive to geopolitical disruptions that ripple through consumption, trade and financial markets.

This vulnerability has been evident during past shocks. During the pandemic, widening gaps between projected and actual GST revenues forced the Union government to borrow over ₹2.69 lakh crore between 2020 and 2022 to compensate states for revenue shortfalls.

The effects of oil price surge

India’s fiscal system remains structurally exposed to oil price volatility. The country imports around 85–87 percent of its crude oil, making it directly vulnerable to external energy shocks a direct macroeconomic transmission channel.

Empirical estimates suggest that a $10 per barrel rise in crude prices can increase Consumer Price Index inflation by roughly 0.2 percentage points, widen the current account deficit by about $9–10 billion (around 0.4 percent of GDP) and reduce GDP growth by nearly 0.5 percentage points under partial pass-through conditions. Oil shocks also propagate through the fiscal system: higher energy costs raise fertiliser and LPG subsidy requirements, increase transport and logistics costs, and elevate inflation-linked expenditure.

Recent policy responses illustrate this transmission. Following the Russian invasion of Ukraine, the Indian crude basket surged from roughly $59 per barrel in 2019 to over $120 in mid-2022.

To contain inflation, the government reduced central excise duties on petrol and diesel by a cumulative ₹13 and ₹16 per litre between November 2021 and May 2022, resulting in an estimated ₹2.2 lakh crore revenue loss. At the same time, energy-linked subsidies expanded, with fertiliser support rising sharply and total energy subsidies touching nearly ₹3.2 lakh crore.

Amid the ongoing conflict in West Asia, estimates by ICRA suggest that if oil prices average around $100 per barrel, India’s current account deficit could widen from about 0.7-0.8 percent to nearly 1 percent of GDP, while government expenditure could rise by as much as ₹3.6 trillion due to higher subsidy and compensation requirements. This underscores how energy shocks translate simultaneously into external imbalances and fiscal stress.

When oil prices spike, governments typically absorb part of the shock through tax reductions and subsidy expansion, compressing fiscal space. In a system increasingly reliant on transaction-linked taxes, such shocks can simultaneously weaken consumption, reduce GST buoyancy and expand expenditure pressures, creating a direct fiscal squeeze.

Impact on households

Household balance sheets reveal a key channel through which energy volatility transmits into the domestic economy.

Private consumption accounts for roughly 61.4 percent of India’s GDP, yet household liabilities have risen sharply from about 36–37 percent of GDP in 2022 to over 41 percent by 2025, increasing sensitivity to inflationary shocks and suggesting that consumption is being sustained less by income growth and more through credit expansion.

Net financial savings have also become more volatile, falling to around 3–4 percent of GDP in recent quarters before recovering to about 7.6 percent, indicating a weakening of financial buffers.

The exposure is being amplified by the current shock, as disruptions to LPG supply chains — over 60 percent of which depend on imports — have translated into longer refill cycles and local shortages, raising household energy costs even as leverage remains elevated.

At the same time, India’s expenditure strategy has pivoted toward infrastructure-led growth. The Union Budget 2026–27 places effective capital expenditure at ₹17.15 lakh crore.

While such front-loaded investment strengthens long-term productive capacity, it compresses fiscal space for welfare stabilisers. Allocations for the Mahatma Gandhi National Rural Employment Guarantee Act fell to ₹60,000 crore in 2023–24, 33 percent below the previous year’s revised estimate; by December 2022, States had already spent 117 percent of available funds, with ₹8,449 crore in pending liabilities.

In a low-wage environment, imported energy inflation compresses real incomes while debt servicing obligations remain fixed. Rising household leverage therefore becomes a macroeconomic vulnerability, especially when fiscal policy prioritises capital formation over income support and external shocks weaken consumption. Beyond households, geopolitical uncertainty is also shaping corporate investment and credit allocation.

Implications for industrial sector

India’s industrial upswing is increasingly concentrated in capital-intensive sectors aligned with public investment. Industrial output rose 7.8 percent in December 2025, with manufacturing expanding 8.1 percent year-on-year and 4.8 percent over April–December. High- and medium-technology industries now account for about 46 percent of manufacturing value added, according to the Economic Survey 2025-26.

By contrast, labour-intensive industries remain weak.

Private investment remains cautious despite rising project announcements.

CMIE (Centre for Monitoring Indian Economy) data shows private firms account for nearly 80 percent of new project announcements, yet only about 9 percent reached completion in 2022–23, suggesting a recovery that expands production capacity more than wage-linked income. Recent financial stability assessments show bank balance sheets are considerably stronger than a decade ago.

In a volatile global environment, this financial strength has translated into greater risk selectivity rather than broader credit expansion. 

The recent LPG crisis induced shortages of commercial cylinders have forced the closure of restaurants, cloud kitchens and small food businesses, with gig worker unions reporting a 50–60 percent decline in food delivery orders. Such shocks disproportionately affect labour-intensive and informal sectors, where incomes are directly tied to daily demand and lack institutional protection, even as capital-intensive sectors remain relatively insulated within the financial system.

As external pressures intensify, they raise a broader question of fiscal optionality: the state’s ability to absorb shocks without abandoning consolidation targets. With fiscal space tied to capital expenditure and revenues dependent on economic transactions, geopolitical disruptions can quickly narrow the room for counter-cyclical intervention. In such a context, India must rebalance toward income-led demand, more resilient revenue bases and greater energy diversification, or risk turning external shocks into a recurring source of fiscal stress.

(Deepanshu Mohan is professor and dean, O.P. Jindal Global University. He is a visiting professor at LSE and a visiting academic fellow at University of Oxford. Saksham Raj and Aditi Lazarus contributed to this column.)

On the Multi Commodity Exchange, crude oil for December delivery fell ₹10, or 0.19%, to ₹5,213 per barrel in 10,100 lots. Image used for representative purpose only.
| Photo Credit: Reuters

To fulfil one of his major electoral agendas of providing cheap oil (‘drill baby drill’), in his inaugural speech US President Donald Trump argued for increasing the domestic production of crude oil and utilising it to spur prosperity in the US economy.

His message of promoting carbon-intensive fossil fuels is detrimental to global decarbonisation initiatives and climate change mitigation measures. 

Trump’s appeal to US oil producers to extract more oil may have significant implications for the global energy market, including Russia.

The US, being the single largest oil-producing country (it produced 19,358 thousand barrels per day in 2023 with a global share of 20.1 per cent), has substantial power to influence the global oil market.
The increase in US oil production could lead to a surge in global energy supplies, potentially driving down prices.

However, as a production cartel, the Organization of the Petroleum Exporting Countries (OPEC) with a global share of 35.3 per cent (in 2023) or OPEC+ (OPEC+Russia, Mexico and a few others with a global share of 54 per cent) has relatively better control over global oil production and prices.

Russian oil

Any reduction in crude oil prices in the global market is expected to have an adverse impact on the Russian economy. It is heavily reliant on oil and gas exports especially now that it is at war with Ukraine and constrained by several restrictive measures imposed by various European countries and the USA.

Lower crude oil prices could reduce Russia’s revenue from energy exports, potentially affecting its ability to fund domestic programs and military expenditures.

However, the actual impact of Trump’s announcement on Russia will depend on other factors as well.

These include the global demand for oil and alternative sources of energy, the response of other energy-producing countries (especially OPEC), the response of US domestic producers and the effectiveness of various energy sanctions on Russia.

OPEC and price stability

On the other hand, this announcement is unlikely to have any significant impact on OPEC’s oil production decisions and pricing strategies.

Historically, as a cartel, OPEC has usually adjusted its production levels to maintain crude prices and stabilise the global crude market. Thus, it is likely that OPEC members will continue to stand together and adopt appropriate measures as a response to any unilateral changes in US oil production.

According to Gordon Kaufman (a petroleum industry expert at the Massachusetts Institute of Technology), in case there is an increase in US oil production, as a countermeasure, the OPEC members, especially Saudi Arabia (which holds a 12 per cent share in global crude extraction), may even reduce their own production to keep global prices stable.

Even Exxon, a major US oil and gas producer, does not expect an actual ramp-up of oil production by US companies in response to Trump’s policies.

Impact on India

Despite being the third-largest crude oil importer (accounting for 10.3 per cent of global crude imports in 2023), India is a price taker in the global crude market and has no control over crude prices. India’s sources of crude import are quite diversified but its import dependency for crude oil was as high as 88 per cent in 2023-24.

However, due to recent developments in global geopolitics (disturbances in the Middle East and the Russia-Ukraine war), Russia has become a major source of crude oil imports for India, with reduced imports from Middle Eastern countries.

In 2022, after Russia invaded Ukraine, the European Union imposed a price cap on crude imports from Russia. In response, Russia offered a substantial discount on its crude oil compared to global Brent crude prices, and India has taken advantage of this citing its unavoidable dependency on crude imports.

The discount on crude oil offered by Russia was as high as US$15 to US$20 per barrel (compared to spot price). In 2021-22 Russia’s position was ninth with a two percent share in India’s crude imports.

Due to huge crude imports from Russia at a discounted price, Russia’s share increased to 33 per cent in 2023-24, making it the largest import source for India followed by Iraq (21 per cent), Saudi Arabia (16 per cent), UAE (6.4 per cent) and the US (3.6 per cent). In 2023-24, crude oil imports (US$139.3 billion) accounted for 21 per cent of India’s total imports (US$ 678.2 billion).

Thus, a sizable portion of the Indian exchequer goes towards crude imports, not including imports of various petroleum products. On the other hand, the export of refined oil products is a major source of revenue earnings for India.

In 2023-24, the total import of petroleum products (other than crude imports) was worth US$ 23.3 billion (including US$ 10.5 billion of LPG) while exports amounted to US$ 47.7 billion (including US$ 22.1 billion of high-speed diesel and US$ 11.2 billion worth of motor spirit).

Trump’s pursuit of cheap oil could have both stimulating and adverse implications for the Indian economy. Any reduction in global crude prices will certainly benefit the Indian government’s exchequer and provide a higher margin to domestic oil companies in India.

However, this clear promotion of a fossil fuel-driven economic growth strategy by the US president would pose significant challenges to India and other developing countries which are most vulnerable to the threat from climate change and global warming.

Moreover, the US withdrawal from the Paris Climate Agreement under Trump 2.0 will also impact global initiatives for carbon neutrality.

India is already experiencing various adverse effects of climate change such as intensified extreme weather events and adverse impacts on its agricultural productivity and public health.

India had announced its aim of achieving a net zero emission target by 2070 in CoP26 and adopted various measures to decarbonise its economy, especially the energy sector.

The Indian economy is heavily dependent on fossil fuels. The transport sector depends significantly on imported crude oil and gas. However, the recent progress of India towards decarbonising its transport sector is impressive.

Electric vehicle (EV) sales in India increased from 1.53 million units in 2023 to 1.95 million units in 2024 which was 7.44 per cent of the total vehicles sold in 2024.

Other than EVs, increasing penetration of compressed natural gas (CNG) in the transport sector, a mandate for biofuel blending, and the introduction of hydrogen-fueled vehicles (mostly in the pilot stage) are other major steps towards decarbonisation of the transport sector in India.

The major challenge of decarbonisation through renewable energy in India is meeting large energy demands with a reliable source of energy where renewable energy is characterised by the intermittency of generation.

Moreover, the availability of critical minerals plays an important role in renewable-based energy technologies. The global market for critical minerals is very concentrated and primarily dominated by China.

Since India does not have sufficient critical minerals, its import dependency on China for critical minerals will pose a substantial challenge to its energy security.

However, as indicated in this year’s Budget, India is targeting 100GW of nuclear capacity by 2047. Unlike renewables, nuclear energy (with appropriate safety measures) as a non-fossil source can provide a reliable energy supply and ensure energy security.

Trump’s ‘drill baby drill’, therefore, is unlikely to have much of an impact on India’s energy security.

Saswata Chaudhury is Senior Fellow & Area Convenor, Energy Assessment and Modelling Division, The Energy and Resources Institute, New Delhi

Originally published under Creative Commons by 360info.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

New Delhi:

Union Minister for Petroleum and Natural Gas Hardeep Singh Puri said on Tuesday that Russia has become the largest supplier of crude oil to India, accounting for more than 35 per cent of the country’s imports.

Speaking at the FIPI Oil and Gas Awards Ceremony, the minister highlighted the dramatic shift in India’s oil sourcing over the past two years, with Russian oil imports surging from a mere 0.2 per cent in February 2022 to consistently occupying the top spot in recent months.

“For quite some time now, Russia has been the largest supplier of crude to India. The percentage would be upwards of 35 per cent, but it varies from month to month,” Mr Puri stated. He noted that the increase is influenced by global price dynamics and availability, with India balancing long-term contracts with spot market purchases.

“It was as little as 0.2 per cent in February of 2022, but then it went up. How it will stay and where it will go, I keep saying these are not decisions that the Ministry takes. Our oil marketing companies, floor tenders for particular grades of crude,” he added.

Mr Puri also emphasized the evolving nature of India’s energy partnerships, mentioning other significant suppliers such as Saudi Arabia, the UAE, Iraq, Kuwait, and the United States.

“For some countries, they have long-term agreements, for others, they are buying on the spot and then it becomes a function of price, etc. In the foreseeable future, the major suppliers, Saudi Arabia, UAE, Iraq, Kuwait, United States are big suppliers now. More and more energy is coming on the global scene,” the Union Minister said.

Further, talking about India’s progress in the energy sector, Hardeep Singh Puri stated that is evident in key achievements such as the reduction of fuel prices over a three-year reference period, making India the only country globally to achieve this.

“LPG cylinder prices in India are among the lowest worldwide, with costs as low as Rs 6/day for PMUY households and Rs 14/day for non-PMUY households. Furthermore, India is on track to increase its exploration acreage to one million square kilometres by 2030, with a 16 per cent increase expected by 2025,” he said.

The Union Minister also highlighted the government’s success in increasing ethanol blending in petrol, from 1.53 per cent in 2014 to 16 per cent in 2024, with the goal of reaching 20 per cent next year.

“This achievement places India as the second-largest economy in biofuel blending, following Brazil. The expansion of City Gas Distribution (CGD) coverage was also underscored, with 100 per cent CGD area coverage expected in 2024, compared to just 5.5 per cent in 2014,” he said.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

The government has hiked windfall tax on domestically produced crude oil to ₹6,000 per tonne, from ₹3,250 per tonne, with effect from Tuesday, July 2, 2024.

Explained | What is windfall tax and why are countries imposing it on the energy sector right now?

The tax is levied in the form of Special Additional Excise Duty (SAED).

The SAED on the export of diesel, petrol and jet fuel or ATF, has been retained at ‘nil’.

The new rates are effective from July 2, an official notification said.

India first imposed windfall profit taxes on July 1, 2022, joining a host of nations that tax supernormal profits of energy companies.

The tax rates are reviewed every fortnight based on average oil prices of the previous two weeks.

Image used for representational purpose.
| Photo Credit: Special Arrangement

The government has hiked windfall tax on domestically produced crude oil to ₹4,600 per tonne from ₹3,300 per tonne with effect from March 1.

The tax is levied in the form of Special Additional Excise Duty (SAED).

The SAED on export of diesel, however, has been cut to nil from ₹1.50 a litre, according to an official notification.

On petrol and jet fuel or ATF, the levy has been retained at nil.

The new rates are effective from March 1.

India first imposed windfall profit taxes on July 1, 2022, joining a host of nations that tax supernormal profits of energy companies.

The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

Petrol and diesel prices are unlikely to be increased despite firming raw material costs because of upcoming general elections next year, Moody’s Investors Service said.

Three state-owned fuel retailers — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) — which control roughly 90% of the market, have kept petrol and diesel prices on freeze for a record 18 months in a row.

This is despite the raw material (crude oil) cost surging last year, leading to heavy losses in first half of 2022-23 fiscal year before easing oil prices propelled them to profitability.

Also Read | High oil prices to weaken profitability of 3 PSU oils firms, says Moody’s

International oil prices have firmed up since August, leading to margins of three retailers turning negative again.

“High crude oil prices will weaken the profitability of the three state-owned oil marketing companies in India — IOC, BPCL and HPCL,” Moody’s said in a report.

“The three companies will have limited flexibility to pass on higher raw material costs by increasing the retail selling prices of petrol and diesel in the current fiscal year because of upcoming elections in May 2024.”

The OMCs’ marketing margins — the difference between their net realized prices and international prices — have already weakened significantly from the high levels seen in the quarter ended June 30, 2023 (1Q fiscal 2024). Marketing margins on diesel turned negative since August while margins on petrol have narrowed considerably over the same period as international prices increased.

“The increase in raw material costs comes after the price of crude oil jumped around 17% to more than $90 per barrel in September, from an average of $78 a barrel in 1Q fiscal 2024,” Moody’s said. “An extension in production cuts by the Organization of the Petroleum Exporting Countries (OPEC) of around 1 million barrels a day until December 2023, combined with Russia’s extended export cuts of around 300,000 barrels a day over the same period have driven oil prices higher.”

Nonetheless, high oil prices are unlikely to be sustained for long as global growth weakens, it said.

“The decline in the OMCs’ marketing margins has been mitigated to some extent by the increase in gross refining margins (GRMs). The benchmark Singapore GRMs have improved since June in part due to continued growth in liquid fuels consumption in the region as well as planned refinery outages which constrained the supply of petroleum products in the region,” it said.

The ratings agency expected GRMs and international prices of transportation fuels to moderate in subsequent quarters as concerns over China’s economic slowdown dampen demand while supply increases as refineries come back online after the completion of scheduled maintenance activities.

“Although a smaller gap between international and domestic prices will reduce marketing losses for the OMCs, their overall profitability will remain weak as retail selling prices will likely remain unchanged,” it added.

After very strong earnings in April-June quarter, OMCs’ operating performance is expected to weaken over the next 12 months as oil prices remain at current elevated levels.

“Still, the three companies’ fiscal 2024 (April 2023 to March 2024) earnings will remain strong and higher than historical levels, even if crude oil prices remain at current levels of $85 per barrel to $90 a barrel in the second half of fiscal 2024.

“This is attributable to the OMCs’ exceptionally strong earnings in 1Q fiscal 2024. The three companies’ EBITDA in the first quarter alone was close to their average annual EBITDA for the last few years,” Moody’s said, adding the OMCs will start incurring EBITDA losses in the second half of fiscal 2024 if crude oil prices increase to around $100.

Strong marketing margins for petrol and diesel drove the robust operating performance in 1Q fiscal 2024.

OMCs’ net realised prices on sale of diesel and petrol have largely remained unchanged since April 2022 even though feedstock costs had declined steadily. The price of Brent crude declined to $78 per barrel (bbl) in 1Q fiscal 2024 from $112 in 1Q fiscal 2023.

Among the three OMCs, IOCL and BPCL are better positioned to withstand any further increase in crude oil prices, compared to HPCL, the rating agency said, adding the difference in the OMCs’ capacity to absorb an increase in feedstock costs stems from the difference in their business profiles.

IOCL’s and BPCL’s larger-scale operations and a high degree of integration between their refining and marketing segments allow them to weather the impact of adverse changes in the operating environment. IOCL’s presence in petrochemicals and pipelines also reflects its business diversification. Meanwhile, HPCL’s smaller scale and a higher dependence on its marketing operations make it more vulnerable to any unfavourable price movements.

“Strong earnings in 1Q fiscal 2024 and lower crude oil prices compared with fiscal 2023 have reduced the OMCs’ working capital requirements and allowed them to reduce their borrowings over the past few months. As a result, we expect leverage, as measured by debt/EBITDA, for all the three companies to remain well positioned compared with the rating thresholds through fiscal 2024. This is despite capital spending and shareholder payments remaining high and rising crude oil prices resulting in increased working capital requirements in the period,” it said.

Meanwhile, the Indian government’s ₹30,000 crore in capital support for the oil marketing sector announced in the budget earlier this year will boost cash flows for the OMCs and partially cover their capital spending needs. To this effect, IOCL and BPCL have already announced rights issues to the government.

Moody’s said it has however not factored this into its projections as the timing and quantum of such proceeds remain uncertain at this time.

The SAED or duty on export of diesel will be cut to ₹5 per litre, from ₹5.50 per litre currently. Image for representation purpose only. File
| Photo Credit: AP

The government on Friday hiked special additional excise duty (SAED) on crude petroleum to ₹12,100 per tonne with effect from September 30.

In the last fortnightly review on September 15, windfall tax on domestically produced crude oil was set at ₹10,000 per tonne.

Besides, the SAED or duty on export of diesel will be cut to ₹5 per litre, from ₹5.50 per litre currently.

The duty on jet fuel or Aviation Turbine Fuel (ATF) will be reduced to ₹2.5 per litre effective Saturday, from ₹3.5 per litre currently.

The SAED on petrol will continue at nil.

India first imposed windfall profit taxes on July 1, 2022.