India needs energy storage policy to manage supply shocks: S&P Global

S&P Global said India requires a comprehensive energy storage policy to tackle supply disruptions amid high dependence on crude oil, LNG and LPG imports

India requires a comprehensive energy storage policy to steer through supply shocks as witnessed during the ongoing West Asia conflict, given the country’s high reliance on imports, said S&P Global on Wednesday.

 

The country requires supportive policies across battery energy and product-level storage for key industrial end users, it said. S&P analysis shows that India currently has less than less than 2 gigawatt (Gw) of battery storage, and has storage of approximately 22 days for liquefied petroleum gas (LPG), 60 days for aviation turbine fuel (ATF), 74 days for crude oil, and no strategic reserves for natural gas.

 

The West Asia war has highlighted India’s reliance on West Asia due to proximity, infrastructure compatibility, and contractual legacy. Alternative sources could mitigate shock but rarely replace the economic and logistical efficiency of the Gulf supplies in real time, said S&P.

 

 

India’s import dependency for meeting domestic demand is as high as 90 per cent for crude oil, 50 per cent for natural gas and 60 per cent for LPG. Of the total imports, India sources around 40 per cent of crude oil from West Asia, while LNG and LPG reliance stand roughly at 60 per cent and 90 per cent, respectively, from the region.

 

“There is no like-for-like substitute for crude oil supplies from West Asia. India receives crude oil supplies in seven days from West Asia, whereas crude bought from West Africa arrives in 25 days,” said Pulkit Agarwal, head of India content at S&P Global Energy.

 

Building energy reserves for temporary shock absorption is critical to mitigating physical risk, as it gives the energy system more leeway to maneuver, it said. “Energy resilience will rely on improving flexibility in contracts, refining configurations, expanding shipping access and enhancing demand response.”

 

Economic headwinds 

 

The ongoing West Asia conflict has emerged as a significant test of India’s macroeconomic resilience, forcing a recalibration of the nation's risk management from short-term buffering to long-term strategic structural changes, said S&P. 

 

The agency downgraded its projection for the Indian economy by 50 basis points for financial year 2026-27 (FY27) to 6.6 per cent from its earlier March estimate of 7.1 per cent citing disruptions in energy flows, prices, trade and investments. 

 

The report highlights that West Asia is a critical artery for India, accounting for 45 per cent–50 per cent of its crude oil imports and 65 per cent of its LNG imports. Consequently, the war has triggered an energy shock, driving up freight costs by approximately 75 per cent month-on-month in March 2026 and creating input cost pressures across manufacturing, construction, and services. 

 

Average inflation is projected to rise to 5.1 per cent in FY27 from 2 per cent in the previous year, as elevated energy prices feed into retail costs. Dharmakirti Joshi, chief economist Crisil further argued that food inflation is expected to be closer to 5 per cent or even more due to external pressures in addition to a low base effect. 

 

At the same time, capital expenditure remains a key growth support, suggesting the government will need to preserve investment while managing subsidies with the debt trajectory also becoming less favourable if energy shocks persist. 

 

Joshi further highlighted that the pressures on fiscal deficit would mount with the impact on deficit being larger than that on the Gross Domestic Product with the central government debt-to-GDP ratio potentially rising to 57.5 per cent in FY27 from 56.1 per cent in FY26.

 

“Weaker exports and a short- term impact on remittance flows from the Middle East will widen the current account deficit,” the report added.  

The report also points to three policy priorities that will shape India’s path to Viksit Bharat 2047: energy security, food security and deeper economic reforms.