West Asia Shock Ripples Through India’s Kitchens, Factories and Supply Chains

The mood is tense in Malur Industrial Area. About 45 kilometres to the east of Bengaluru, it has a melange of small and medium industrial units. Walking through it, you will see firms making diverse products — laboratory glassware, farm equipment, steel products and plastics. The road leading into the industrial area adds yet more diversity — car batteries, hydraulic pumps, steel scrap.

Even as India worries about shortages of cooking gas, industries are starting to worry about something else — the raw materials that come from petroleum. Two weeks have passed since the US and Israel attacked Iran. In the days since, between Iran blocking the Strait of Hormuz and exporters like Qatar Petroleum shutting down oil and gas exports, an unprecedented energy shock has begun to ripple across the world. India, which gets 80-85% of its LPG; about 55% of its crude; and 60% of its LNG from the Persian Gulf, is amongst the worst affected.

Even in this cluster in Bengaluru, where four of the seven firms CarbonCopy spoke to run on electricity, apprehension is rising. “We run on electricity and, as of now, there are no issues with power supply,” said Naveen Paul D’Cunha, the director of Akshay Enterprises, a sheet metal fabricator.

But he is starting to get worried. “If oil prices go up, so will paint prices,” he told CarbonCopy. “Until $110, paint prices might not be affected too much. But if it goes higher, the cost of paint will go up.” If that happens, firms like his will have to take those costs onto their margins — or pass them to customers, potentially losing sales. “Crude is not used for only petrol and diesel. It is also used for many industrial inputs as well — chemicals, sulphur, paint, plastics, etc. all those will be affected.”

By the end of the first week of the conflict, once the Indian government decided to divert LPG supplies from commercial users to households, India saw rising concerns amongst eateries over commercial LPG supplies. Since then, as CarbonCopy found while reporting from Bangalore, Kolkata, Delhi and Jaipur, those fears have begun spreading to other sectors as well.

The view from North India

Given India’s low strategic reserves for LNG and LPG, the conflict’s knock-on effects were first felt by users of these two fuels. By March 7, gas agencies like Bharat Gas Agency in Delhi’s Amar Colony neighbourhood had been told to stop supplying gas for commercial purposes. “Right now, we have very limited supplies which are going for domestic use,” said Roop Singh, its agency dealer.

The decision took commercial establishments by surprise, in part because, over the past ten years, the Indian government has been evangelising LNG as an affordable and plentiful fuel. “Industrial areas were asked to shift from diesel to gas and now Indraprastha Gas has put out an advisory that (their gas stocks) will soon exhaust because of the war,” said JK Talwar, General Secretary, Delhi Manufacturing Federation. The immediate fallout was a jump in black marketing of gas cylinders — and a class-based split between LPG users.

“We were used to booking and getting cylinders on the same day,” said a worker at Amar Colony Food Market, a street food hub in the crowded New Delhi suburb. “We have no plans to switch to electric stoves. Once the gas is exhausted, we will have to close down till the time we start getting LPG again.” Pannelal Yadav, a worker at a local sweet shop concurred, saying their “gas supply can last for a month and if the situation doesn’t get better, then they’ll have a problem.” 

Larger outfits, however, are looking beyond LPG. The manager of a nearby Bikanervala, an Indian restaurant and snack food chain, told CarbonCopy that while their “gas supply is near exhaustion, their corporate house has told them that they’ll be switching to electric cookers.” In South India, too, larger outfits are responding in analogous ways while smaller ones contemplate closure — or start switching to alternative fuels like coal and firewood.

That said, commercial establishments burning LPG are just the tip of the proverbial iceberg. As D’Souza said in Malur, a large part of industrial raw stock is now derived from petroleum. In North India, too, businessmen are now anticipating raw material shortages. “We have roughly 5,000 units associated with us,” said Jagdish Somani, President of the Vishwakarma Industrial Area Association in Jaipur. “They operate across several sectors — iron industry, rolling mills, footwear manufacturing; and many others. (These) businesses are now not accepting new orders.” 

Apart from energy, availability of raw materials is a reason. “Raw materials such as oils, petrochemicals, and inputs used in soaps and detergents are not arriving in adequate quantities,” said Somani. “At the moment, factories are running because they still have materials and orders in their pipeline. But if this situation continues for another one or two months, it could have a significant impact on the entire system.”

Somani cited plastic granules, used extensively for packaging. “Even though some of these are produced domestically, their production and availability could still be impacted, affecting packaging costs. Ultimately, this means that FMCG products such as soaps and detergents may see price increases of 15–20% in the coming month if the situation continues.”

India’s MSMEs were already struggling. In 2016, they were hit by demonetisation — a shock which saw units eat into their working capital while waiting for demand to revive. They got back to their feet only to be hit by India’s GST rollout in 2017.  With that, smaller units ceded business to larger rivals. 

Then in 2020 came Covid-19 — and two years of lockdowns and further demand destruction. Even today, as JK Talwar, General Secretary of Delhi Manufacturing Federation, told CarbonCopy, firms find themselves struggling again to operate due to the ongoing conflict.  “At one time, factories here used to run all day and now they struggle to run even for 12 hours,” he said. Now, with the energy shock, MSMEs are in trouble again. “We rarely used to make a profit margin and now we don’t even have that,” said Talwar. 

The view from West Bengal

Reporting from the industrial areas in and around Howrah, Kolkata, CarbonCopy found similar patterns. As in Delhi, direct users of LPG are in trouble. Gupta Brothers, an eatery on Kolkata’s MG Road, needs 10-15 cylinders a day, but is getting just 4 — despite having three suppliers. “At current stock, we can run for only 2-3 more days,” said Barun Kumar Sahoo, who was at the eatery’s counter. The establishment, which has 60 employees, is falling back on diesel — and trying to use gas more efficiently.

Smaller eateries echoed their counterparts in Delhi. “We have gas stock for only 2 more days, if we cannot get gas, we will have to shut the shop and return to their villages,” said Netai Dholey, the manager of Solanki Sweets at Shyambazar. “We have run 100% on LPG for the past 15 years. We do not have alternatives like diesel anymore — and we cannot run on induction, coal or kerosene. The latter two are dangerous and polluting.” 

Eateries, however, are not the only commercial enterprises that use LPG as energy. So do autorickshaws — which were already contending with a doubling of gas prices. “The biggest brunt is being borne by the auto-rickshaw driver,” said Ganesh Agarwal, the owner of a petrol pump in Bangur. “They have to wait in line for 3-4 hours daily in a long queue from 6 AM to 9 PM. Sometimes, there are nearly 100 autos in the queue.” With gas no longer available in cylinders, he said, auto drivers have no option but to get LPG at pumps.

Auto drivers queue up for nearly 4 hours for LPG in Kolkata. Photo: Shaswata Kundu Chaudhuri

One fallout of demand outstripping supply? Black-marketing has started. An employee at Mullicks, a sweetshop in Howrah, told CarbonCopy he had paid ₹2,200 per gas cylinder in the second week of the conflict. “The normal price is ₹1,500. Today, a dealer asked for ₹2500. Another dealer asked for ₹4,500 which is unsustainable for business. If things continue as they are, we will have to shut shop.” Another outlet, National Economic Restaurant, at Shyam Bazar, said the going rate for cylinders was ₹3,500. In the auto sector, too, said Agarwal, price has hit ₹4,500 per cylinder.

This number was confirmed by Tamal Ghosh, a gas dealer at Jalan Industrial Complex in Andul, Howrah. His firm procures gas from bigger dealers and sells to about 20 local companies and eateries. “The rate of LPG cylinders has been ₹ 4,500 since March 7,” he told CarbonCopy. In effect, small eateries and auto-rickshaw drivers now have to compete with larger eateries and, as this report will show below, larger companies for energy. 

In his conversation with CarbonCopy, Dholey had alluded to the larger fallouts of closure. “This will impact the shop’s suppliers. Milk, especially, will be hit hardest as its shelf life is at maximum a day, and the supplier has to take out the milk daily even if it cannot be sold.” 

Such are the ripple effects from this conflict. India faces an energy crisis which results in the closure of eateries which, in turn, clips the earnings of not just their employees, but also gig workers, suppliers of milk and growers/traders  of farm produce. In tandem, since this is petroleum we are talking about, diverse sectors, even those not entirely running on LPG or LNG, face shortages — and end up dropping production. 

In Kolkata and elsewhere, those impacts are seen in two ways. The first has to do with firms that run a part of their manufacturing process on LPG. GJ Lighting Tower, for instance, uses LPG for iron plate and sheet cutting. “We can shift to plasma cutting, but will not be able to do cutting for heavy goods, as LPG is required for thicker cutting,” said Kamal Patra.

In Bengaluru’s Malur, too, CarbonCopy had run into firms facing a similar predicament. FabTools, a metal fabrications company like GJ Lighting Tower, sizeably runs on electricity. “We get 70% of our power from solar and 30% from Bescom (The Karnataka discom),” said an employee at the firm. “We, however, need LPG for cutting thick metal. Alternatives like Argon cannot cut thick sheets of metal.” That said, the unit needs just 5 cylinders a day. And so, said the employee, it might have to be bought from informal economy vendors. “Maybe, instead of paying the current ₹1,200, we will have to pay more. In the past too, at times of a shortage, we have paid 2x/3x.”

This creates, however, an incentive for blackmarketers to direct LPG supply away from auto-rickshaws and smaller eateries. 

And then, there are the units which depend on the industrial intermediates produced from petroleum. Take India’s air-conditioner manufacturers. The sector, as Business Standard reported, uses LPG for “brazing and curing of powder coating”. Stocks of polypropylene and polystyrene, used for making fridges, washing machines, etc, are running low as well.

Even this, however, is not the full litany of costs. As has been reported elsewhere, there are other critical byproducts like urea, naphtha and sulphur. Shortages of each will come with fresh ripple effects. Urea, for instance, is critical for India’s farms. 

Industrial area in Andul, Howrah, in West Bengal. Photo: Shaswata Kundu Chaudhuri

Endgame

As the conflict in West Asia enters its third week, India is precariously placed. Industries’ energy and raw material stocks are starting to run low — even as replenishment remains elusive.

Units directly dependent on gas will have to either pay more for black-marketed gas, look for new alternatives, or fall back on the fuels they used before gas. The first two alternatives are costly and come at a time when India is heading into lower demand than before. As for the third, several of the alternative fuels being spoken about – like coal, briquettes and firewood – will further batter India’s already degraded environment. 

Working on this report, CarbonCopy visited the plant of a battery manufacturer at Malur who exports batteries to West Asia — Syria, Dubai, etc. For six months now, the unit was seeing low sales as tensions rose in the region. Then came the conflict. “Half of our assembly line runs on electricity and the other half runs on gas,” said an employee. “We use electricity for the pre-preparation and the gas for final assembly. We were getting our gas supplies from Indane. But they told us two days ago that there is no gas. Which means our production stops unless we either electrify fully or switch to hydrogen. We could go for full electrification, but that will cost ₹1.5 crore,” said the employee at the battery manufacturing unit at Malur. “We had not switched so far thinking gas is affordable — and available.” 

The alternative, said Piyush Goyal, a former executive at a City Gas Distributorship in Maharashtra, is to fall back on older forms of energy — fuel oil, furnace oil, methanol, coal, briquettes, etc. 

Large questions lie here. Can all units switch? Also, if demand rises for, say, kerosene, that will come with its own knock-on effects for existing kerosene users.

In many ways, this is Covid Redux. Large parts of India’s economy are about to see either an energy shortage or a raw material shortage due to the preponderance of petroleum byproducts in industrial supply chains. As input costs rise, sales will drop and margins will come under pressure. Firms can either keep their units running — in which case, they will eat into working capital; or they can lay off people, in which case, there is a job crisis.

The (even) larger costs, though, will be ecological. There are rising reports about families, hostels and eateries switching to firewood – after just two weeks of the crisis. If the conflict continues, this use of firewood will only grow. And, as CarbonCopy reported last year, India’s forest bureaucracy is unable to rein in illegal felling. And so, with the West Asia crisis, India’s forests, too, enter a perilous new era.

Such are the costs of not decarbonising sooner.