As published on moneycontrol


‍India's trade deficit is an energy problem. Solving it requires completing the transition already underway.

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India's current account deficit has one dominant cause. Remove oil from the import basket and the non-oil current account runs a surplus thanks to a healthy services export surplus. At roughly $130 billion of net imports, crude oil is India's single largest import line, close to 30% of all merchandise imports. It is the reason every spike in West Asia feeds directly into India's inflation, fiscal, and rupee depreciation arithmetic. The energy transition is not primarily a climate story for India. It is a core mechanism by which India’s economic sovereignty can be achieved.
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India has already crossed peak coal in its power sector. Carbon Brief confirmed in January 2026 that coal-fired generation fell by nearly 3% in 2025, only the second full-year decline in at least half a century, and the first driven by clean energy growth rather than an economic correction. The harder task, crossing peak oil, is where the real economic prize is.
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India Took a Different Road Than Every Economy Before It

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Energy think tank Ember describes India's development path as the “electrotech fast track”. The label is apt. When the United States industrialised, it drew nearly 90% of its final energy from fossil sources at peak. China reached roughly 80% before its renewable rollout began to shift the mix. India is transitioning much earlier. 
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The comparison with China at equivalent income levels is instructive. When China's per capita GDP-PPP was roughly where India's is today, the year was 2012. China had negligible solar generation. India in 2025 already draws 9% of its electricity from solar, up from 0.5% a decade earlier. Per capita coal generation in India stands at around 1 MWh, only 40% of China's level in 2012, and the trajectory is diverging further. China subsequently ramped coal consumption to around 4 MWh per person. India will not follow that path. EVs already account for 5% of car sales, and India leads the world in electric three-wheeler adoption. Per capita road oil demand, at 96 litres, is about half of China's 2012 level and is close to peaking. India's electrification rate (share of electricity in total final energy consumption) sits at nearly 20%, comparable to where China stood in 2012, and has been growing by around 5 percentage points per decade. India has already achieved near-universal household electricity access (99.5%), a milestone China reached around 2013-2015 at a higher per capita GDP-PPP. 
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At comparable income levels, China was still commissioning coal plants at pace while India is already generating more solar per person and far less coal-based electricity. The structural reasons are clear in hindsight: a services-heavy economy, a climate that demands cooling over heating, and solar technology arriving at commercial scale just as India's power demand was accelerating. At the same GDP-PPP per capita where China crossed 5% EV sales, income per person in PPP was around $17,000. India crossed that threshold at $12,000.
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India is tracking China's electrification curve while avoiding its fossil fuel one. If this continues, the single biggest vulnerability in India’s trade balance is managed faster than anticipated. When this is achieved and rupee depreciation is largely mitigated, India’s growth in rupees can finally equate to growth in dollars.
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The Population-Scale Energy Transition

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In 2014, India had 2.82 GW of installed solar capacity. By the end of 2025, it had 136 GW. That is a 3,450% increase in a decade. India installed a record 36.6 GW of new solar in 2025 alone, 43% more than the year before, and joined the United States, China and Germany as one of four countries to have crossed the 100 GW cumulative threshold in solar. Total renewable installed capacity in India reached 254 GW by November 2025.
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The manufacturing story matters as much as the capacity story. A decade ago, India imported almost all of its solar modules. Today, its annual module production capacity has reached 144 GW under the government's Approved List of Models and Manufacturers, roughly doubling in 2025 alone. India went from near-zero domestic production to near self-sufficiency in solar modules in less than ten years. An economy that powers its growth with domestically produced electricity is insulated from the commodity shocks that have repeatedly destabilised fossil fuel importers.
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With the SHANTI bill allowing private participation in nuclear energy projects, coal need not be the only baseload contributor. Nuclear energy, with its 24/7 baseload capability, negligible carbon footprint, and land efficiency roughly twenty times greater than solar, is the natural complement to renewables.  That is a new condition in India's power system, and it fundamentally changes the investment case for new coal capacity. The combination of renewables, particularly indigenous solar, and a faster ramp of baseload support from nuclear will support a faster shift past peak coal for India.
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China's Oil Plateau Is a Preview

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China's coal trajectory has an oil parallel that India's policymakers should study carefully. The IEA confirmed in early 2025 that China's combustion uses of petroleum fuels have already plateaued. Combined gasoline, diesel, and jet fuel use was 2.5% below 2021 levels in 2024. EVs now account for about half of all car sales in China, displacing roughly 3.5% of new fossil fuel demand annually. The IEA projects China's total oil demand will peak by 2027, two years ahead of its previous forecast. China, which drove over 60% of global oil demand growth between 2013 and 2023, now accounts for under 20% of it.
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China reached this point after decades of fossil-intensive growth, carrying the full weight of a manufacturing and construction economy that needed oil at every stage. India's economy is structured differently. Two-wheelers and three-wheelers dominate its passenger transport sector, not cars. Its industrial base is lighter, its services orientation stronger. India can reach peak oil demand earlier in its development curve than China did, at a lower absolute level of per-capita consumption. China has proved that a major emerging economy can cross this threshold. India has the conditions to cross it faster.
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Accelerating The Transition

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India's oil vulnerability is not abstract. In early 2026, tensions in West Asia pushed Brent crude to multi-year highs and a disruption in the Strait of Hormuz exposed the limits of just-in-time import dependence. India imports 85-88% of its crude requirement. The rupee has depreciated by roughly 40% against the dollar over the past twelve years, and oil price shocks are a primary transmission mechanism.

The response is a two-sided strategy. On the demand side, electrification of the transport segments that consume the most fuel is the primary lever. India's EV market crossed 2.3 million unit sales in 2025, with two-wheelers at 57% of volumes and three-wheelers at 35%. EV penetration in the three-wheeler segment had already reached 54% in FY24. These segments account for the bulk of India's passenger transport fuel demand. Their electrification, running on domestically produced solar electricity, is a direct and growing reduction in crude import volumes.

On the supply side, ONGC issued a ~$20 billion global tender in February 2026 for deepwater drilling rigs, the largest offshore exploration programme in India's history, covering basins in the Krishna-Godavari region and the Andaman and Nicobar deep sea under the government's Samudra Manthan Mission. Domestic production will not replace imports in the near term. But the intent is coherent: reduce the oil import bill from both ends simultaneously.
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The Trade Surplus Is Achievable

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India's merchandise trade deficit in FY25 was approximately $284 billion. The services surplus was $189 billion, and the overall trade deficit landed at $95 billion. The current account sits at around 1% of GDP, held in check not by balanced goods trade but by a services engine growing at double digits. India's IT and GCC sector generated a services surplus of $134 billion in the first eight months of FY26, up 15% year on year. The services engine is working. The merchandise drag remains, and oil is its largest component.
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India has committed to importing $500 billion more from the United States as part of its trade architecture. Meeting that commitment without blowing out the current account requires either a dramatic expansion of services exports or a structural compression of merchandise imports. Both are now in motion. Services surplus growth is running at double digits. The energy transition can compress the oil import bill from below. These two forces work in the same direction. An Indian current account surplus before 2035 is a credible economic projection, not a policy aspiration.
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The government's policy investments reinforce the reading. India reached 500 GW of total installed power capacity in September 2025 and is targeting 500 GW of non-fossil capacity by 2030. The PM Surya Ghar scheme has brought rooftop solar to 2.5 million households. The PM E-DRIVE scheme has committed Rs 10,900 crore to two-wheeler and three-wheeler electrification. The PLI scheme for solar manufacturing drove a near-doubling of domestic module production capacity in 2025 alone. These are not simple environmental programmes with economic benefits attached. They are industrial policy for energy sovereignty.
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Energy Transition Means Economic Sovereignty For India

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India's power sector accounts for roughly 40% of its greenhouse gas emissions. A structural decline in coal generation, sustained through the 2030 renewables target and the nuclear privatisation, puts a sectoral peak within reach this decade. That matters for the planet.
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But the more consequential frame is the balance of payments one. A country that runs on domestically produced solar electricity, manufactures its own modules, electrifies the transport segments that consume the most fuel, and reduces its exposure to a $130 billion net annual import liability will carry a fundamentally different external position. A more stable currency. More room for monetary policy. An economy whose growth rate is no longer taxed by a built-in current account leak.
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However, none of this is guaranteed. The Government of India has a well-documented pattern of announcing transformative programmes with urgency and implementing them with bureaucratic  complacency. The PLI scheme for solar manufacturing and the National Technology Missions carry genuine ambition. The bureaucratic machinery that executes them often does not match the scale of the ambition. Domestic oil exploration sits under a regulatory regime so layered with nanny-state compliance requirements that indigenous production has been made structurally unviable, which is a remarkable contradiction for a country that imports 85% of its crude. Every unnecessary approval step is effectively a tax on the energy transition. 
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The deeper risk, however, is policy durability. Too many of India's most consequential reforms are one election, one reshuffle, or one populist moment away from reversal. An energy transition that spans two to three decades cannot be built on policy that survives only as long as its authors remain in office. India’s energy transition needs structural bi-partisan alignment and obvious protections that outlast individual administrations: safe harbour mechanisms that shield reformist policy from retroactive reversal, grandfathering provisions that sunset incompatible programmes gracefully, and long-horizon commitments of fifteen to twenty-five years that give private capital the confidence to co-invest at the scale this transition demands. 
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The opportunity is real. Whether the institutional machinery provides the common-sense coverage is another question that matters. A dedicated National Mission focus that manages inter-departmental turf wars and has direct oversight by the PM himself may be the right priority for stakes this large. 
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India crossed peak coal without a crisis forcing its hand. No shock, no collapse, no policy reversal. It happened because technology was available, and India deployed it faster than any comparable economy had at the same stage of development. The path to peak oil runs through the same logic. Electrify the segments where electricity is already cheaper. Build the domestic supply chain so the savings compound inside the country. Reduce the import bill as a share of GDP each year until oil is a manageable variable in the determination of India's external balance. 
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The country that does this will not just have cleaner air. It will have broken the structural constraint that has kept every large emerging economy in a current account deficit through its longest period of rapid growth. India is the first with a credible shot at doing so. The priorities being set right now will determine whether it delivers.
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