Opportunities beckon

The US-Israel-Iran war has brought our vulnerabilities into sharp focus; on one side is the US led by Donald Trump, who does not respect any middle ground ~ even a stray comment invites the danger of being ‘tariffed’ ~ and on the other side is Iran, which controls the Straits of Hormuz, a passageway for most of our oil and gas. Since day one of the war, oil and gas prices have started rising, putting a strain on our exchequer; oil-based products like fertilisers and plastics have also become costlier, which amplifies the bad news.

The Gulf Indian community is in panic; more than 20,000 Indian crew, on ships stranded in the Straits of Hormuz, live in constant fear, suffering daily privations. The Indian rupee and stock market have both fallen precipitously. No one can predict how long the imbroglio would last, and when we can expect the situation to return to normal. Remarkably, China the largest importer of oil, appears unaffected by the present crisis, because it has developed alternate routes for oil and gas to flow in ~ a direct oil pipeline from Russia, a network of pipelines from Central Asia, and also the China-Myanmar pipeline ~ bypassing all present and future choke points.

Advertisement

Showing exemplary foresight, China had also developed its renewable energy capacity in a big way, and simultaneously lessened its dependence on fossil fuels, by initiatives like replacing petrol cars with EVs, to the extent that China is now the world leader in EV production. To reduce its dependence on imported natural gas, China has liberally deployed technological solutions, like going in for coal gasification. China with far greater resources, and far greater prescience, could reinforce its energy security much before the present crisis kicked in, but India, operating on a shoestring budget, and with a reactive mentality, should at least learn a lesson, so that similar crises in future do not hit us so hard.

Probably, the time has come for stepping out of our comfort zone, and reviewing energy cost and security, because oil prices would remain elevated in the foreseeable future, and consequently, in the long run, price difference vis-à-vis alternative fuels may not be very consequential. Also reducing dependence on fossil fuels, by trying out alternative technologies, and simultaneously increasing the use of renewable energy would definitely help in cleaning up our polluted environment. Currently, India’s dependence on crude oil import is nearly 90 per cent, and LNG and LPG import dependence is around 55-60 per cent, with much of the imports passing through the Straits of Hormuz.

Sadly, as in other sectors, despite the avowed aim to cut import dependence, no long-term steps have been taken, to develop domestic capacity, or to meaningfully develop external supply sources. As a knee-jerk measure, the Government is applying to the US for sanctions waiver for purchasing Russian crude, which is conditionally granted, as a favour, for short periods. Crude oil is believed to be present, at great depths, below the Deccan Trap (Maharashtra, parts of MP and Gujarat) and the Arabian Sea. Little effort has been made to acquire technology for such deep drilling.

Proposed pipelines, bypassing sea routes are in protracted limbo; the Iran-PakistanIndia gas pipeline, contemplated in the 1990s, has drowned in controversies, and not much headway has been made in developing the Central Asian Republics as steady oil and gas sources; the TurkmenistanAfghanistan- Pakistan-India (TAPI) pipeline, is a work in progress since the 1990s. A similar story has played out for fertiliser imports. India imports fertilisers such as urea, diammonium phosphate (DAP) and muriate of potash, as well as liquefied natural gas, a key feedstock for urea production.

The country consumes roughly 400 lakh tonnes of urea every year, but produces only about 300 lakh tonne, with the remaining 25 per cent coming from imports, suggesting only partial dependence. But the reality is different, because even indigenous urea is produced from ammonia; natural gas is both the primary raw material and fuel for producing ammonia. Presently, around 86 per cent of the natural gas used by our fertiliser plants is imported. The West Asia Crisis has disrupted supplies, and India, the world’s largest importer of urea, has placed orders to import a record 25 lakh tons of urea at nearly double the price paid just two months ago.

The higher urea cost is a drain on the exchequer, as fertilisers are highly subsidised ~ a 45-kg bag of urea costing Rs.1200 to Rs.1700, is sold to farmers for Rs.266.50, a price unchanged since 2012. The fertiliser subsidy for the last financial year is estimated at about Rs.1.87 lakh crore, against a budgeted figure of Rs.1.71 lakh crore, which will increase by about 20 per cent in the current financial year. A long-term solution lies in substituting the present ‘grey urea’ by ‘green urea’ ~ a process involving production of hydrogen from water, by electrolysis, and carbon-dioxide from smoke by CCU (carbon capture and use).

Processes using renewable energy to manufacture ammonia, by combining the two gases, would altogether decouple fertiliser production from fossil fuels. There would be a price advantage too ~ grey urea costs US$540 per ton, and is currently selling at US$600 per ton, while the cost of green urea comes to only US$475 per ton. However, setting up green urea plants may take time. It may be noted that Union Budget 2026 has allocated Rs.20,000 crore to be used for Carbon Capture Use and Storage (CCUS) ~ over the next five years.

In the short-term, coal, biomass or even waste, can be converted into synthesis gas or ‘syngas’, which can then be used to produce ammonia, and eventually urea. Given India’s abundant coal reserves, this would reduce import dependence but may have an adverse environmental impact. A Standing Committee Report on the ‘System of Fertilizer Subsidy’ (17 March 2020) pointed out that many fertilizer plants were operating with inefficient and outdated technology, increasing manufacturing costs, thus resulting in higher subsidy payments by the Government. The Committee recommended that a) subsidy should be paid directly to famers, and b) manufacture, and sale of fertilisers should be decontrolled.

However, this recommendation was not implemented, resulting in perpetuating inefficiency, and given the huge subsidy, increasing the prices of fertilisers for the Government. The Report also pointed to excessive fertiliser use, and that too in wrong proportions. Sadly, not much has been done to educate farmers about proper use of chemical fertilisers. Mutatis mutandis, such observations hold true for a host of commodities and situations. For example, consequent to the West Asia crisis, and inhospitable conditions in the US, a lot of talent and capital may like to relocate to India; proper schemes will have to be drawn up, to ensure that desi talent and capital do come here, and stay put.

The crux is that like China we must visualise the future, and prepare for the various eventualities. Another learning is that we are a technologically advanced, growing economy, yet we still follow obsolete practices ~ dating back to the times when we were poor and backward. Plainly put: Our financial and fiscal systems need recalibration so that efficiency is promoted and the interplay between subsidies, interest rates and taxation operate to benefit the country and public, instead of particular individuals, or interest groups. As for the present crisis, we need to remember the words of the great Helen Keller: “When one door of happiness closes, another opens; but often we look so long at the closed door that we do not see the one which has been opened for us.”

(The writer is a retired Principal Chief Commissioner of Income-Tax)