Fueling Exports, How the West Asia Crisis Threatens India’s Manufacturing Ambitions
As Energy Supplies Tighten, Exporters Plead for Priority Allocation of LPG and Natural Gas to Protect Production Schedules
The West Asia crisis, triggered by the joint attack launched by the United States and Israel on Iran, has sent shockwaves far beyond the immediate conflict zone. For India, the disruption in energy supplies poses a direct threat to one of its most vital economic engines: export-oriented manufacturing.
On Thursday, the Federation of Indian Export Organisations (FIEO) urged the government to allocate LPG and natural gas to export-oriented manufacturing units on a priority basis. The message was urgent and unambiguous: any disruption in fuel availability will create serious problems in maintaining production schedules, and lost production means lost exports, and lost exports mean lost markets that may never be regained.
FIEO President S.C. Ralhan has written to the commerce and industry ministry, laying out the case for priority allocation. Manufacturing exporters are facing issues, he said. There is an urgent need for priority allocation of LPG and natural gas as fuel for export-oriented units (EOUs) and export-oriented small and medium enterprises (SMEs).
The government has already revised the priority order for allocating domestically produced natural gas, placing LPG production alongside CNG and piped cooking gas at the top. This is understandable—household and transportation needs are immediate and politically sensitive. But for exporters, this reordering creates a new vulnerability. If industrial fuel supplies are squeezed to prioritise domestic consumption, production lines will slow or stop.
The Competitive Reality
Export-oriented manufacturing units operate in a highly competitive global environment. They are constantly competing with suppliers from countries such as China and other East Asian economies. These are not gentle competitions; they are battles for market share won and lost on the margins of price, quality, and reliability.
Large global buyers follow highly structured global sourcing models. They do not source on impulse or maintain large inventories to buffer against supply disruptions. They require uninterrupted production and timely deliveries from their suppliers. A missed deadline is not just a lost order; it is a broken relationship, a damaged reputation, a signal to the buyer that they should look elsewhere.
In the event of disruption in fuel availability, Indian exporters are unable to maintain production schedules. The consequences are immediate and severe. International buyers, facing their own production schedules and customer commitments, are compelled to shift their orders to competing countries. And the country most ready to absorb those orders is China.
This is not speculation; it is the logic of global supply chains. When one supplier falters, another steps in. And once a buyer has shifted their business, it is extraordinarily difficult to win it back. The new supplier has proven their reliability; the old supplier has proven their vulnerability. The loss is not temporary; it is permanent.
The Critical Role of LPG and Natural Gas
In this context, the availability of LPG and natural gas as industrial fuel is critical, particularly for export-oriented SMEs and EOUs that rely on it for their manufacturing processes. These are not marginal users; they are the backbone of India’s export effort.
Small and medium enterprises account for a significant share of India’s manufactured exports. They are flexible, innovative, and deeply embedded in global supply chains. But they are also vulnerable. They lack the bargaining power of large corporations, the financial reserves to weather disruptions, and the political connections to secure priority treatment. When fuel supplies tighten, they are often the first to feel the squeeze.
Export-oriented units, by contrast, are larger and more established. They have relationships with buyers that span decades. But they are not immune to disruption. A week without fuel means a week without production. A week without production means missed deadlines. Missed deadlines mean lost orders. Lost orders mean idle capacity, laid-off workers, and a downward spiral that is hard to reverse.
FIEO’s communication to the commerce ministry acknowledges the challenging gas supply situation. “We fully appreciate that the present gas supply situation is challenging,” Ralhan said. But appreciation of the challenge is not acceptance of the consequences. “However, even through a calibrated mechanism, a dedicated priority allocation for export-oriented industries would help ensure that production and export commitments are not adversely affected.”
The Jalandhar Example
The urgency of the situation is vividly illustrated by a plea from Jalandhar-based Hand Tools Manufacturers and Exporters Association. Its president, Ashwani Kumar, has requested approval for 425 kg of LPG per day for production line operations, and 19-kg commercial LPG cylinders for factory mess and canteen to provide meals to workers and staff.
These numbers are modest. A few hundred kilograms of gas per day. Enough to keep production lines running and workers fed. But behind these modest numbers lies a larger reality: a thriving industrial cluster, employing thousands of workers, producing hand tools for markets around the world, now facing serious disruptions due to constraints in LPG supplies.
Jalandhar is not unique. Industrial clusters across India—from Ludhiana to Coimbatore, from Surat to Pune—are facing similar pressures. Each has its own story, its own plea, its own anxiety about the future. Together, they constitute a significant portion of India’s manufacturing capacity and export earnings.
The Broader Implications
The immediate concern is protecting existing export orders. But the broader implication is about reinforcing international confidence in India as a reliable sourcing destination. Trust is not built overnight, and it can be destroyed in a moment.
Over the past decade, India has worked hard to position itself as an alternative to China for global sourcing. The “China plus one” strategy—whereby companies diversify their supply chains beyond China to reduce risk—has benefited India significantly. Foreign investors have taken notice. Global buyers have placed orders. A narrative of India as a rising manufacturing power has taken hold.
That narrative is now at risk. If Indian exporters cannot deliver because they cannot access fuel, the “plus one” will quickly become “plus Vietnam” or “plus Mexico” or “plus Indonesia.” The opportunity will not wait; it will move elsewhere. And the momentum that has been built over years will be lost.
Ensuring fuel availability is not just about protecting current jobs and current exports. It is about protecting India’s reputation as a reliable partner in global trade. It is about signalling to the world that even in times of crisis, Indian industry can deliver.
The Government’s Dilemma
The government faces a genuine dilemma. Domestic gas production is limited, and import alternatives are expensive and uncertain. The priority order for allocating domestically produced natural gas places LPG production alongside CNG and piped cooking gas at the top. This is a response to immediate political and social realities: households need cooking gas, and vehicles need fuel.
But the government also has a stake in export performance. Exports generate foreign exchange, support employment, and drive economic growth. A significant disruption in exports would have macroeconomic consequences that would ultimately affect everyone.
The challenge is to balance these competing priorities. How much gas can be diverted from domestic consumption to industrial use without causing political backlash? How much of the burden of adjustment should fall on exporters versus households? There are no easy answers.
FIEO’s proposal for a “calibrated mechanism” and “dedicated priority allocation” for export-oriented industries suggests a middle path. Not an open-ended guarantee, but a targeted intervention to protect the most critical segments of the export sector. Not a blank cheque, but a recognition that some users are more important than others in the broader national interest.
The Path Forward
The coming weeks will be critical. If the conflict in West Asia continues and energy supplies remain tight, the pressure on India’s manufacturing sector will only intensify. Exporters will need more than assurances; they will need action.
The government should consider several measures. First, a clear communication to exporters about what they can expect in terms of fuel availability. Uncertainty is itself a drag on production; knowing the rules allows for planning.
Second, a mechanism for rapid response when specific industries or clusters face acute shortages. The plea from Jalandhar should not have to go through multiple layers of bureaucracy; there should be a channel for such requests to be addressed quickly.
Third, engagement with state governments, which often have flexibility in how centrally allocated resources are distributed. Coordination between Centre and states will be essential.
Fourth, exploration of alternative fuel sources. If natural gas is scarce, can exporters shift to other fuels? Are there subsidies or incentives that could facilitate such shifts?
Fifth, diplomatic efforts to secure energy supplies. The success in securing passage for two oil tankers through the Strait of Hormuz shows that diplomacy can work. Similar efforts are needed for LPG and other fuels.
Conclusion: A Test of Resilience
The West Asia crisis is a test of India’s economic resilience. It tests the ability of the government to manage competing priorities, of industry to adapt to changing circumstances, and of the country as a whole to protect its interests in a turbulent world.
For exporters, the test is immediate and concrete. Can they keep their production lines running? Can they meet their delivery schedules? Can they hold onto the markets they have worked so hard to win?
The answer will depend in large part on whether the government can find a way to keep fuel flowing to the units that need it most. Not all users can be prioritised; choices must be made. But if export-oriented manufacturing is allowed to falter for want of fuel, the consequences will be felt far beyond the factory gates.
FIEO’s plea is not special pleading. It is a warning about what is at stake. And it is a plea that deserves a thoughtful response.
Q&A: Unpacking the Exporters’ Fuel Crisis
Q1: Why are exporters seeking priority allocation of LPG and natural gas?
A: Export-oriented manufacturing units rely on LPG and natural gas as industrial fuel for their production processes. The West Asia crisis has disrupted energy supplies, and the government has revised priority orders for domestically produced natural gas, placing LPG production alongside CNG and piped cooking gas at the top. This reordering threatens to squeeze industrial users. Exporters argue that any disruption in fuel availability will prevent them from maintaining production schedules, leading to missed deadlines, lost orders, and permanent damage to India’s reputation as a reliable sourcing destination.
Q2: How does fuel disruption affect India’s competitiveness in global markets?
A: Export-oriented units operate in a highly competitive global environment, constantly competing with suppliers from China and other East Asian economies. Large global buyers require uninterrupted production and timely deliveries. When Indian exporters cannot maintain schedules due to fuel shortages, international buyers are compelled to shift orders to competing countries—particularly China. Once buyers shift their business, it is extraordinarily difficult to win them back. The loss is not temporary but potentially permanent, damaging India’s position in global supply chains.
Q3: What is the specific situation in Jalandhar mentioned in the report?
A: The Hand Tools Manufacturers and Exporters Association in Jalandhar has reported serious disruptions in production activities due to constraints in LPG supplies. The association has requested approval for 425 kg of LPG per day for production line operations, and 19-kg commercial LPG cylinders for factory mess and canteen to provide meals to workers and staff. This example illustrates the real-world impact of fuel shortages on industrial clusters, where even modest quantities of fuel are essential to keep production lines running and workers supported.
Q4: What broader implications does the fuel crisis have for India’s export strategy?
A: Over the past decade, India has positioned itself as an alternative to China for global sourcing through the “China plus one” strategy. Foreign investors and global buyers have responded positively. If Indian exporters cannot deliver reliably due to fuel shortages, this momentum could be lost, with buyers shifting to other countries like Vietnam, Mexico, or Indonesia. Ensuring fuel availability is not just about protecting current exports but about reinforcing international confidence in India as a reliable sourcing destination—a critical element of the country’s long-term economic strategy.
Q5: What measures could the government take to address this crisis?
A: Several measures could help: clear communication to exporters about fuel availability expectations; a rapid-response mechanism for industries facing acute shortages; coordination with state governments on resource distribution; exploration of alternative fuel sources with potential subsidies for transition; and continued diplomatic efforts to secure energy supplies, building on the recent success in securing passage for oil tankers through the Strait of Hormuz. A “calibrated mechanism” for dedicated priority allocation to export-oriented industries could protect the most critical segments without completely sacrificing other priorities.
