India’s fuel crisis: will the proverbial elephant in the room turn into a peg-lifting camel in the tent?

Our heavy dependence on imports of crude oil, the raw material for what most motor engines burn, means that India’s policy cushions are wearing thin.

The government has thus far used state-owned fuel retailers to absorb much of the oil shock since the end of February, when the Iran war began. It was a choice born of a political calculus, not of economic merit.

Retail price hikes could have risked adverse public opinion ahead of polls in four states. Modi’s weekend advice could help lay the ground for the government to get its foot off the brake pedal and let oil retailers raise consumer prices in line with global energy costs. His behavioural nudge is well aimed, as fuel demand clearly needs to drop. But it’s hardly enough.

For one, the government needs to fast-track initiatives designed to improve electric mobility on our streets, the share of which hovers in single digits. Manufacturing incentives are in place, no doubt. But we need quick gains in the density of charging facilities to boost range confidence among would-be buyers.

The viability of a network’s roll-out, however, depends on electricity tariffs charged by state governments, which set retail rates. Given the poor health of distribution utilities under them, charging-station bills often cross-subsidize other segments like household users.

To solve this problem, the Centre should deploy a mix of financial inducements in aid of power reforms and insist on moderate tariffs under regulatory oversight. This could catalyse the penetration of electric vehicles (EVs), as such networks could promise EV makers larger volumes on which operational scale could crush costs even as thinner margins enable profit inclines.

This might help EVs outsell fossil fuel rivals.

Passenger vehicles account for not just all the petrol guzzled in India, but also around 5% of diesel. And this is the elephant in the room that could become a camel in the tent (with no respect for price pegs).

About 40% of all the petroleum products we use is diesel, 55% of which is used by cargo trucks. This market is fragmented among small fleet owners with operations that are short of efficiency and given to fuel overuse.

Road cargo has an edge over rail conveyance chiefly for point-to-point convenience, but now that our major rail links have gone electric, a shift off tarmac onto steel would serve us well. While the Railways has special freight corridors for bulk carriage, it must use this oil crisis as a chance to compete for an enlarged chunk of the country’s long- and medium-distance traffic.

To hasten this, the system needs greater private participation. A similar campaign for a mass rail-ward shift of travellers from air and road options could help reduce our hydrocarbon imports too.

Within cities, employers must do their bit to help save fuel via work-from-home, car-pools, mass transit systems and so on. Policy wise, the government should open up as many pathways to clean energy as it can.

In many cases, rail travel should get priority over air connectivity, given the fossil-fuel intensity of flights. Hub-and-spoke route options could be fuel-optimized as part of India’s infrastructure build-up. Air, road and railway hubs can be designed in cohesive ways that minimize our exposure to supply shocks and also bring our net-zero target for carbon emissions closer.