India is officially encouraging work-from-home and carpooling, among other measures, to reduce its consumption of fuel, which is a precious commodity globally due to the oil scarcity created by the U.S.-Israeli war on Iran, now into its third month.
The underlying goal is to stem the rupee's decline, since the South Asian nation imports most of the oil it consumes.
Prime Minister Narendra Modi warned of tough decisions aimed at conserving oil, and dollars, in a speech over the weekend, similar to those taken by other South Asian nations.
"In the crisis we face today, we will also have to put a lot of emphasis on saving foreign exchange," Modi said at a political rally in Telangana, according to a video posted on X by news agency ANI.
"We will have to reduce the use of petrol and diesel," Modi said, urging citizens to use public transport. "By saving on fuel use, we can save foreign exchange," he said.
Modi also urged Indians to limit foreign travel, reduce gold purchases and urged farmers to curb use of chemical fertilisers, another large import item for the nation.
Since a foreign exchange crisis in 1991, through the Asian financial turmoil and the 2013 taper tantrum, India has built up dollar reserves, while strengthening its macro fundamentals by reducing inflation and improving government finances.
But with oil holding above $100 a barrel, India’s current account deficit is expected to widen to around 2% of GDP in the year to March 2027 from about 1% last year, largely on a higher oil import bill.
At the same time, dollar inflows have slowed, opening up what brokerage Nomura estimates could be a nearly $68 billion balance-of-payments gap.
That would mark a third straight year of deficits — unprecedented, according to Standard Chartered — and likely force policymakers to act on both sides: attracting dollars and curbing demand.
Options under consideration include a dollar deposit scheme for non-resident Indians and tax tweaks to draw in foreign debt investors, Reuters reported this week. Read here for details.
But such measures may prove costlier and less effective than in 2013, when near-zero U.S. rates made the trade more attractive.
Standard Chartered estimates the RBI may need to offer a roughly 2.75 percentage point subsidy over prevailing swap rates - implying a cost of about $800 million for every $10 billion raised.
Catch up on the possible ways India can save foreign exchange via this explainer.
