West Asia crisis: Gas shortage in India fuels inflation fear

Tushar Dhadam, who runs a small restaurant in one of Mumbai’s commercial hubs, was forced to raise the price of a vegetarian thali, a popular lunch dish on his menu, by 10% in the past week. He paid a premium to buy a commercial cooking gas cylinder on the black market last week, as supply disruptions in West Asia, where India sources most of its gas, created acute shortages in the formal market.

Dhadam said he paid more than Rs.2,000 for a cylinder, against the usual price of Rs.1,750. “I am ready to pay Rs.3,000-3,500 for the next, but there’s none available,” he added. He said he now faces the possibility of shuttering his business temporarily when the cylinder runs out.

The squeeze is even more acute for nearby roadside stalls selling Indian breads, eggs and tea, many of which operate on daily profits of just a few hundred rupees. Unable to afford scarce blue-tinted commercial cylinders, some are illicitly using subsidised domestic cylinders, which come in brick-red colour, hidden inside gunny bags.


The gas crunch is rippling through the economy, raising fears about a spike in prices and a drop in output in some sectors. Data will likely show a pick-up in inflation even before the latest surge in global energy costs, a worrying outcome for policymakers. The rupee dropped to a record low last Thursday after oil prices climbed $100 a barrel again. The rupee fell to 92.36 to a dollar, likely prompting interventions by the Reserve Bank of India. Economists surveyed by Bloomberg predict inflation accelerated to 3.14% in February from 2.75% in the previous month. While still within the central bank’s 2-6% target band, economists are bracing for volatile fuel and cooking gas costs to filter through in the coming months, particularly if supply disruptions persist.

“The impact of elevated and volatile crude and gas prices will be reflected in the March CPI inflation numbers, underscoring their role as the single most important variable for India’s price stability,” says Rajeev Sharan, Head of Research at Brickwork Ratings.

Fuel shipments through the Strait of Hormuz, a vital chokepoint, are all but halted. The gas crunch is adding to a gloomy picture for inflation. Restaurants in parts of the country have halted or curbed operations.