The Hidden Cost Of India’s Energy Mirage

India’s Energy Mirage: The High Cost of Artificial Prices

By Govindraj Ethiraj

Six weeks into a war started by the United States and Israel that has violently disrupted global energy markets, India is experiencing a curious economic phenomenon: supply shortages, notably of gas, accompanied by virtually no serious price impact for everyday consumers.

Politicians might view this as a triumph of state management, but the economic reality is far more punishing.

While the government has selectively raised prices on higher-octane petrol, jet fuel, and commercial gas cylinders, the broader consumer market for oil and gas remains heavily shielded.

The standard 14.2 kg cooking gas cylinders for domestic use saw a modest hike of Rs 60 in the first week of March and have been frozen ever since.

Commercial 19 kg cylinders have seen two hikes — Rs 115 on March 1 and Rs 195 last week — but by all analyst accounts, prices everywhere, particularly, petrol and diesel remain suppressed.

With crude oil firmly above $100 a barrel — and likely to stay there for the foreseeable future as the US and Israel get set for a full ground war with Iran — the Indian government is trapped in a difficult bind.

Because when you try and fight the laws of supply and demand by capping prices, the inevitable result is shortages.

And those shortages are already hitting the most vulnerable.

A Crisis Of Access

Echoing the dark days of the Covid-19 pandemic, several migrant workers in major cities are packing up and returning to their villages.

They are not going because fuel is too expensive but because they simply cannot find it.

Recent reporting by the Indian Express, which interviewed over a 100 migrant laborers at Mumbai’s bustling railway stations, paints a grim picture.

Close to half of the workers — primarily bound for Uttar Pradesh, Bihar, and West Bengal — cited the LPG crisis as their reason for leaving. Incidentally, most of these laborers have never been able to access the standard 14.2 kg cylinders because they lack the KYC documents required for a registered connection.

Another problem for another day.

Instead, they rely on the popular "chotu" 5 kg cylinders, which require only a valid ID.

On Sunday, the government issued a briefing note reiterating that these 5 kg cylinders are widely available at local distributorships.

Quite likely the reality on the ground is different mostly thanks to a cornering and diversion of these cylinders into the black market, mostly for lucrative commercial use.

Hundreds of thousands of homes and businesses have meanwhile switched to kerosene, firewood, or electricity.

Demand and supply are beginning to adjust, but not through calibrated public policy. Instead, the price signals are being dictated by the black market rather than the open market.

Because official prices are suppressed, the natural disincentives to cut back on consumption or shift to alternate fuels simply do not exist.

This is a precarious situation for a highly aspirational developing economy.

The Price Of Reality

India’s upward mobility translates directly into energy consumption — more two-wheelers, more air conditioners, more refrigerators, and more travel.

But it is quite clear now these aspirations must be calibrated to this new geopolitical reality, even if not of our making.

Even if the US and Israel halt their bombing campaigns, or Iran ceases responding by firing missiles across the Persian Gulf, normalcy is far away. And the world has fundamentally changed.

Countries like India which import close to 90% of their crude have little choice but to lower the energy footprint.

And one effective tool for demand destruction and resource allocation is price.

Moreover, if India wants citizens to tighten their belts, it might complement these price hikes with consistent public service messaging and visible austerity at the top.

For instance, the reduction of the several dozen-car ministerial convoys to maybe two or three cars is one such example, not for the fuel it saves but for the message it could convey.

Adjusting to this new energy normal will be tough.

The good news is that demand moderation and supply matching are already underway on the margins, driven by extensive solar investments, electric vehicle purchases and most recently, a government-backed shift to induction stoves.

But these transitions require time.

In the interim, India must stop hiding the true cost of global energy from its citizens.

Hiking prices is the only way to signal a willingness to adapt. Indians must prepare to pay the real price of a changed world.

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Rs 65,000 crore

That’s how much the combined market capitalisation of six of India’s top-10 firms fell last week, in line with a broader weakness in equities. Analysts point to geopolitical tensions, particularly the Iran conflict, as a key trigger for the bearish sentiment, alongside foreign outflows and elevated oil prices.

Top-five laggards:

• Bharti Airtel: lost Rs 29,990 crore

• ICICI Bank: lost Rs 12,850 crore

• Bajaj Finance: lost Rs 11,170 crore

• HDFC Bank: lost Rs 7,820 crore

• Hindustan Unilever: lost Rs 2,350 crore

Top-five winners:

• TCS: gained Rs 16,210 crore

• Infosys: gained Rs 14,450 crore

• Reliance Industries: gained Rs 12,030 crore

• Larsen & Toubro: gained Rs 8,760 crore

• State Bank of India: gained Rs 5,910 crore

However, the gains remained uneven. Selling pressure in financials and FMCG stocks outweighed strength in IT and select heavyweights. Volatility persisted through the week, driven by global cues, oil price swings, and continued foreign institutional investor outflows.

Catch Up Quick: Overall, the divergence highlights a fragile market. While some sectors attracted buying, broader sentiment remains cautious, suggesting equities may stay choppy in the near term.

India Counts the Cost

The West Asia conflict is extracting a steep economic toll on India. Moody's has slashed India's FY27 GDP growth forecast to 6% from 6.8%, warning that prolonged disruptions to LPG shipments will drive household shortages, higher fuel costs and food inflation — with inflation now projected to average 4.8% in FY27, up sharply from 2.4% in FY26.

Meanwhile, industry body CII on Sunday outlined a 20-point agenda seeking emergency credit lines, MSME relief and revised lending norms, PTI reported. Housing markets are already cooling, with prices across seven major cities seeing a muted 2% growth quarter-on-quarter amid dampened consumer sentiment.

Overview: The oil supply picture remains dire. According to Reuters, OPEC+ is weighing an output increase, but the move is largely theoretical — infrastructure damage across Gulf states means resuming normal production could take months even if the Strait of Hormuz reopened immediately.

India's state-run oil marketers are reportedly paying refineries discounted rates to absorb mounting losses from a self-imposed retail price freeze, with international crude firmly above $100 a barrel.

Setup: The conflict shows no sign of abating. President Trump has threatened to target Iranian power plants and bridges on Tuesday if the Strait remains closed. Air India has suspended Tel Aviv flights through May 31.

In the US, diesel has surged to $5.53 a gallon — a sign of what suppressed price signals in India may eventually be unable to hold back.

Foreign Capital Flees India

Foreign investors are fleeing Indian equities at a record pace, withdrawing Rs 19,837 crore ($2.1 billion) in just the first two trading sessions of April. This follows a historic Rs 1.17 trillion exodus in March, bringing total 2026 outflows to Rs 1.5 trillion.

Context: Market analysts attribute this aggressive selling to the escalating West Asia conflict and crude oil prices surging past $100 per barrel. A strengthening US dollar and a 4% depreciation of the rupee have further soured investor sentiment.

Setting: Despite the sell-off, experts note that valuations in certain sectors are becoming attractive. However, a significant reversal in Foreign Portfolio Investor (FPI) flows is unlikely without a clear de-escalation of geopolitical tensions and a stabilization of global energy costs.

Domestic Demand Shines

Indian FMCG companies reported resilient performance in the March quarter of FY26. 

By the Numbers: Marico posted over 20% consolidated revenue growth, driven by high single-digit volume rise in India and strong momentum in value-added hair oils and foods. Dabur projected mid-single-digit revenue growth as robust domestic demand and mid-teens expansion in home & personal care segments offset slower international business. AWL Agri Business achieved 18% value growth and 13% volume growth, with edible oils rising 17% in volume and alternate channels surging 43%. 

Outcome: Stable Indian consumption cushioned the impact of Middle East headwinds and helped companies maintain positive momentum heading into FY27, the companies said.