Whalesbook
Manufacturing Grinds to a Halt Amid Fuel Shortages
Manufacturing in India's industrial areas is facing significant disruption. Production schedules are being re-evaluated and order books are shrinking due to energy shortages. The crisis, linked to supply line disruptions from the ongoing Iran conflict, has made energy scarce, erratic, and very expensive for key sectors, including engineering goods.
Supply Cuts and Soaring Fuel Prices Hit Production
CD Industries, a manufacturer in Ghaziabad, exemplifies the immediate impact. CEO Pankaj Aggarwal stated the company received a 65% cut in its piped natural gas (PNG) supply, leaving it with just over a third of its daily need while prices climbed. For products like forged metal flanges, fuel costs now make up nearly half of total production expenses, significantly raising manufacturing costs. CD Industries has reduced its daily output from 30 metric tonnes, leading to a 10-12% increase in domestic prices and a 5-7% rise in export prices. Indraprastha Gas Limited (IGL), a key PNG supplier in the region, has a market capitalization of about ₹23,695 crore and a trailing P/E ratio near 14.29, highlighting its crucial position in the vulnerable energy supply chain.
Historical Context: Energy Shocks and India's Economy
This situation brings to mind past energy shocks that have strained India's economy, such as those in 1973, 1979, and the 1990 Gulf War, which caused balance of payments crises and slowed GDP growth. With India importing about 90% of its crude oil, it remains highly vulnerable to geopolitical instability in the Middle East. Current tensions have driven Brent crude prices up, increasing India's import costs and inflation. The manufacturing sector's performance reflects this, with the India Manufacturing PMI dropping to 53.8 in March 2026, the lowest in nearly four years, due to rising costs and Middle East conflict uncertainty. Engineering goods, a vital sector contributing 3.53% to India's GDP and significant export revenue ($109.22 billion in FY24), are directly impacted. Despite engineering exports reaching a record $122.43 billion in FY26, localized production issues could threaten future growth.
Systemic Weaknesses Exposed by the Crisis
The crisis highlights structural weaknesses in India's industrial system, especially for Micro, Small, and Medium Enterprises (MSMEs). These companies, crucial to manufacturing, often operate with tight margins and cannot easily absorb higher energy costs or supply cuts. Over 20 industrial units in Ghaziabad have reportedly closed temporarily, with LPG users hit hardest. India's heavy reliance on energy imports creates a constant structural risk. Unlike China, which has policies to shield industries while managing fuel prices, India must balance inflation control with industrial support. Limited fuel diversification and dependence on key shipping routes increase the sector's vulnerability to global shocks.
Seeking Stability: Calls for Resilience and Diversification
Industry leaders are calling for government flexibility on short-term fuel use and long-term strategies for self-reliance and import diversification. Future solutions require faster investment in renewable energy, exploration of alternative fuels, and stronger domestic supply chains to buffer against global volatility. While the engineering sector has shown notable resilience with record exports, sustained growth depends on resolving these core energy security issues.