Speaking to CNBC-TV18, Narang said India’s long-term response to elevated crude oil prices should focus on structural changes that reduce fuel consumption and import dependence, especially at a time when the Iran conflict threatens to widen India’s current account deficit.
“We have done very well, for instance, in renewables. More than 50% of the grid is now based on renewables,” Narang said, adding that India has avoided the kind of power shortages seen in several Asian economies that remain heavily dependent on gas imports.
He said the country now needs to deepen the transition towards electric mobility, noting that EV penetration in India remains low compared with global standards. “Around 8% of volume sales last year were EVs, as against maybe half in a few countries and a global average of 25%,” he said.
Narang added that policy measures such as expanding public transport networks, encouraging work-from-home practices and increasing investments in alternative fuels could gradually reduce India’s energy import bill.
The comments come after Prime Minister Narendra Modi urged citizens to reduce unnecessary fuel consumption, postpone non-essential gold purchases, avoid international travel and cut dependence on imports as India braces for the impact of higher crude oil prices.
The government’s concern is centred on the current account deficit rather than economic growth, with India importing more than 85% of its crude oil requirements. Economists and market participants believe prolonged oil prices above $100 per barrel could significantly widen the deficit and pressure the rupee.
Narang said India is still in a much stronger macroeconomic position than during the 2013 taper tantrum episode, when inflation was near 10% and the current account deficit had widened sharply. “In essence, we are starting from a very good position. However, there is no room to be complacent,” he said.
He added that while short-term measures such as curbs on gold imports or tweaks to the Liberalised Remittance Scheme could help at the margin, structural reforms remain more important over the long term.
Sanjay Parekh, Founder and CIO at Sohum Asset Managers, said India must also focus on increasing domestic oil and gas production to reduce vulnerability to global energy shocks.
“Even after 10 years, I believe we will still need a large amount of oil if we are not self-sufficient,” Parekh said. He argued that India should adopt a more liberal policy framework to attract global investment into the oil and gas sector.
Parekh also supported raising domestic petrol and diesel prices if crude prices remain elevated, warning that suppressing fuel prices could eventually push up bond yields and borrowing costs across the economy.
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Meanwhile, Chandresh Jain, Rates and FX Strategist at BNP Paribas, said the Reserve Bank of India could consider offering a special dollar window to oil marketing companies to reduce pressure on the rupee.
“We are seeing that in other parts of the world as well, where many of these regular buyers of dollars have been asked to buy dollars directly from the central bank,” Jain said.
However, Jain cautioned that India may not attract the same level of foreign inflows through FCNR deposits or dollar bond schemes as it did in 2013 because global interest rates are now significantly higher.
