On Episode 820 of The Core Report, financial journalist Govindraj Ethiraj talks to Manas Majumdar, Partner– Oil & Gas Sector Leader at PwC India as well as Ajay Rotti, Founder and CEO at Tax Compaas.

SHOW NOTES

(00:00) Stories of the Day

(00:50) The markets crash further on war uncertainty and ships under attack in the Strait of Hormuz.

(05:57) India is well geared to absorb shocks even as the economy grows

(08:20) Crude oil supplies are under control as sourcing steps up, says Government spokesperson.

(15:50) Are there silver linings in gas supplies as well?

(17:33) What the liberalising of investments from China means at this time

NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

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Good morning, it's Thursday, the 12th of March and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

The stock markets crash further on war uncertainty and ships under attack in the state of Hormuz.

India is well-geared to absorb shocks as the economy grows, Crisil Ratings says.

Crude oil supplies are under control as sourcing steps up, according to the government.

Are there silver linings in gas supplies as well?

And what the liberalising of investments from China into India means at this time?

Markets

Oil prices continue to be the key driver of sentiment right now, since they mostly capture the war in West Asia. On the other hand, unlike previous occasions, oil prices may not fully reflect the crisis we are in because the demand side is much softer.

Nor do oil prices capture the knock-on effects of oil and gas supplies faltering, including to India, which has already triggered massive shortages of cooking gas. A Bloomberg report on Wednesday said some urea producers in India and Bangladesh have shut down plants or moved up annual maintenance after Qatari supplies of liquefied natural gas, that's LNG, a key feedstock, has been suspended because of the war. Manufacturers, including companies like the Indian Farmers Fertiliser Cooperative or IFCO, have either halted some of their facilities or started routine upkeep, according to people who spoke to Bloomberg.

Now, restarting a paused plant could take as long as a month, provided LNG supplies resume, they told Bloomberg. Now, this is, of course, the problem with most such plants, including chemical process plants, where resumption of production is not as simple as putting on a switch. Now, LNG is the primary feedstock for urea production, serving as an energy source and a key input in making it also the world's most widely used fertiliser.

The report says gas supplies to India's fertiliser industry are about 70% of their requirement. The other knock-on effect is this. A long-drawn halt to LNG supplies could force India, the world's top importer of urea, to ramp up purchases, pushing up global prices and affecting the government's efforts to manage its subsidy burden.

Fertiliser demand peaks during the monsoon season that begins in a few months, that's June, according to the Bloomberg report. Elsewhere, the International Energy Agency is proposing a release of emergency oil reserves that could be the largest in its history, with the decision expected to arrive overnight Wednesday. According to Bloomberg, the IEA has suggested a release in the range of 300 to 400 million barrels.

The agency, which is based in Paris, coordinates stockpile releases for OECD nations. And a meeting of G7 leaders on Wednesday was also to discuss this. All of this is not having much impact on prices, though, as it is not crude supply but the expanding war theatre that is affecting the markets everywhere, including, of course, India.

Now to come to markets. The benchmark indices resume their declining streak after a one-day break. The Nifty 50 was down 394 points to 23,866, and the Sensex was down 1,342 points to 76,863.

The markets were on edge after three ships were fired at near Iran's coast, according to news reports. One of them caught fire, causing on-board crews to evacuate. Broader markets were lower.

The Nifty mid-cap and Nifty small-cap indices were down 1.2 and 0.3 percent lower, according to Business Standard. Meanwhile, the rupee fell on Wednesday as oil prices were volatile and stock prices were also down. Though, intermittent dollar sales by state-run banks or public sector banks cushioned its losses, according to traders who spoke to Reuters.

The rupee was down 0.2 percent to 92 rupees per ounce on Wednesday, thanks to higher oil prices which reignited inflation worries. Spot gold was at about $5,186 per ounce on Wednesday morning. Meanwhile, in an interesting move, US President Donald Trump announced a $300 billion deal with a company called America First Refining and Reliance Industries, or the promoters of Reliance Industries, since no details were forthcoming.

Now, this has been pitched as the first refinery in America in 50 years and is going to come up in Texas. Interestingly, this venture does not have any of the big oil names like Chevron or ExxonMobil involved. Now, the $300 billion figure has no real meaning, at least from an investment point of view, and could be attributed to the usual Trump-style enthusiasm.

The investment could be worth a few billion dollars, though, depending on what the actual project size is and valuation also is. Interestingly, America First Refining seems to be a new company for all practical purposes and appears to have been promoted by another company called Element Fuels, about whom too little is known in the public domain. America First Refining said in a PR Newswire release that it received a nine-figure investment from a global supermajor at a 10-figure valuation.

Now, obviously, President Donald Trump's statement allows us to triangulate this to Reliance, though again, it's not clear whether it's the promoters or the company because neither have, at this point, issued a statement. AFR said it also signed a binding 20-year offtake term sheet with the same global supermajor that secures commitments to purchase, process, and distribute American-produced energy exclusively sourced from American shale oil. The company will officially break ground on the new refinery in the second quarter of 2026.

That's the calendar second quarter, which presumably means in a month Element Fuels founder and chairman John V. Calce holds the same position at America First Refining. So, the investment from Reliance or its promoters would appear to be in the nature of early-stage or almost venture capital investment, though one of course does not use the term venture capital for projects of this size.

India’s Economic Resilience

Rating agency Crisil last evening put out a report which highlighted India's ability to absorb shocks while continuing to compound growth as domestic demand, public infrastructure capital expenditure, and a gradually broadening private sector capex cycle counterbalance an uncertain external environment shaped by rising protectionism and geopolitical flare-ups.

Crisil says domestic demand continues to be supported by fiscal measures like income tax cuts, rationalisation of goods and services tax, high direct benefit transfers, and adequate liquidity that have lowered borrowing costs. And India's real GDP growth will moderate but remain healthy at 7.1 percent in fiscal 2027. That's 26-27 compared with 7.6 percent in fiscal 2026.

That's the previous year revised under the new GDP series. And this was revealed by Crisil at the 10th edition of its flagship annual India Outlook Conclave. There are of course assumptions and those assumptions are a spell or another spell of normal monsoons, benign food inflation, the Brent crude hovering at $75-$80 per barrel, and steady global growth despite tariff and geopolitics led uncertainties.

Now $75-$80 a barrel is a reasonable assumption but obviously as you know we are closer to $90 right now. So if the war ends it could well go back to below $75 a barrel. Corporate revenue growth, Crisil says, is expected to stay in the range of 8-9 percent backed by resilient consumption and a gradual pickup in private investment, though commodity linked sectors may face pricing pressure and growth in construction-related segments could moderate.

Crisil also says lower borrowing costs and sustained public capex, that's about 3.1 percent of GDP, will continue to support demand and crowd in private investment with industrial capex driven by production-linked, incentive-based, and emerging sectors like electronics, semiconductors, electric vehicles, solar, photovoltaic defence, and AI-related infrastructure. And finally Crisil says India's export competitiveness is improving because of a multi-pronged strategy spanning infrastructure, technology adoption, skill development, and market access, supported by government initiatives aimed at localisation and value chain integration. It says that exports could double to about 80 lakh crore rupees by fiscal 2031. That's in about 5 years time.

Crude Oil Strategies

Brent crude futures were swinging between gains and losses on Wednesday with all the action that we've been talking about and were last trading just under $90 a barrel. Markets also seem to doubt whether the International Energy Agency's plan for a record release of oil reserves could offset potential supply shocks, according to Reuters, which brings us back to the point that markets are really waiting for an end to the war or clearer signals to that effect.

Till then, Reuters also reported that liquefied natural gas stocks gained after the government invoked emergency measures to redirect supplies following disruption in the state of Hormuz. This is in India and stocks like Adani, Total Gas, and Gujarat Gas, and Indraprastha Gas were all up. While oil seems under control, at least in a relative sense, gas is the challenge.

Could there be some silver linings in all the efforts presently being taken to ramp up supply? I spoke with Manas Majumdar, leader oil and gas fuels and resources at consulting firm PWC, and I began by asking him to give us a sense on what India's options were at this point, particularly in the context of gas.

INTERVIEW TRANSCRIPT

Manas Majumdar: No, you're right, the issue is more with LNG and LPG. Just to give a little background, India does produce natural gas of its own, 50%. The rest is, of course, imported LNG, as you highlighted.

Through the LNG terminals, we have across both posts, right? So, Dahej, we have Kochi, Hazira, etc., and so on, so forth. LPG, we actually do slightly more than 50%, probably close to 60% is imported, because it is, A, India is still a fairly LPG-intensive country in terms of demand, and the refineries, while we are sufficient in most other fuels, has only a certain slate of LPG it produces, and it has typically been to maximise petrol and diesel in most cases, right?

So, while LPG in a typical splate can be anywhere between 10 to 15%, you know, you play with it, and that is what they're trying to do to address pushing some of the refineries to produce more LPG, but that will help you to a certain degree. Some of it also, we will need to look at other refineries, like a Reliance or maybe a Naira, if that's possible to do that, because bulk of the imports of LPG that comes in is from Saudi, and that is essentially cut off. It's not that they don't have supply, it's a supply chain issue, like we were saying.

So, rather than looking at alternate routes of supply, which potentially could be U.S. as well, because U.S. has some propane equivalent that they do use as cooking gas, in fact, you have those small propane cylinders that they use, in campfires, etc. It's too expensive, right? Which is where it has to be closer home, A, refineries of our own, and maybe alternate routes that you could get.

And which is also the case for LNG also. LNG, potentially, U.S. can be a source, but there are bottlenecks on the liquefaction side of how much gas could be then liquefied and then shifted to India.

Govindraj Ethiraj: And if you were to look between, let's say, near term to medium term, long term, I guess we don't want to think about right now, could we be sourcing more, let's say, gas, particularly LPG now from Saudi Arabia via the Red Sea? Could some of that U.S. gas come here? I mean, how does that look?

Manas Majumdar: We'll have to check that. I don't think there are gas pipelines that go from east to west, right? The east-west pipeline is a petroleum product pipeline.

Okay, it's an oil pipeline. It's an oil pipeline. So, to that extent, I don't think that's really a route, which is where bulk of it will then rely in near term.

I don't know in long term what the solutions could be. Near term would be around a demand management. As you can see, there is a more focus on domestic demand matching as versus commercial that it has been highlighted to many establishments as such.

And of course, enhancing production from our refineries itself. Long term, honestly, again, as you said, it's very difficult to predict because you can suddenly change supply routes and supply chains over, you know, a crisis that happened over a few weeks back, right? I mean, this literally happened late February and we are like, what, 9-10 days in.

So, to that extent, to assume that whole supply chain configurations will change in a week is not likely. We'll have to see what the long term implications are. Near term, the gas, yes, there is likelihood of gas being supplied.

There are many LNG projects that are coming online in Australia. Shells are coming online in Indonesia, in PNG. So, potentially, there are eastern sources of gas that would come in to supplement bulk of our LNG, which comes from Qatar.

And of course, we have contracts with the US itself existing. And in fact, there was a very recent one that I think Indian Oil signed in addition to Gale as well for LNG contracts. So, gas, I think we're better safe.

So, I definitely believe we have a medium term solution where we could ramp up. Some constraints being there, but it's possible. LPG, lesser so.

Govindraj Ethiraj: Got it. So, if Indian refineries ramp up LPG, which is to produce more propane and butane, which is what makes up LPG or most of it, what will they pull back on? And will they have to do that?

And that's one. Second, you said how the export orientated refineries, I mean, they could move product to India, which I understand can be done. So, what could be the total number if you were to do all of this?

Manas Majumdar: So, again, if we say there's a plus 5% play and if you look at the Indian refinery slate of what about 250 million tonnes, of that close to about 90 million tonnes is Reliance and Naira, right? So, that leaves about 160 odd, which is domestic. Of that 160, if you say 5% additional could be LPG, which is mostly it will cut away from things like petrol, NAFTA, which is again that C3, C4 cut, things that are reformed and hydrogenated and pushed back into the system.

Those would add again, as I said of that, probably again 5% of the domestic mix, right? Which is how much would that be? That's about 8 million tonnes, right?

Which is fairly decent. You know, of course, this is an annual basis. On a monthly basis, this would be less than a million tonne, but enough to suffice.

Plus the bigger quotient is that about 90 million. Now within that, we'll also have to see refineries are configured in a certain fashion. Both Naira and Reliance are configured more towards transport fuel, but they can produce LPG to a certain extent.

Because again, as I said, some of those are recalibrated, retreated and moved back into other fuel products. They can add a substantial portion because for example, if we say some of that becomes LPG, you could add another maybe 10% from that export-orientated units as well. So India has fair play, I would say, to at least address the short-term aspects of LPG.

The allowing parts is while it has that fair play and the government is doing tremendous amounts, both the PSUs, the oil PSUs, and of course, I'm pretty sure Reliance and others are working together with the government. The play is what beyond that, right? Because as I said, there aren't that many supplies in place.

Govindraj Ethiraj: And last question. So you said that we have about 90 million tonnes between Reliance and Naira. Is one third of that is for domestic and the other 60 is for export?

What's the breakup?

Manas Majumdar: Typically around that is already, as you said, some of it, they do supply to domestic markets. Naira, lesser so, they were supplying to retail outlets. Even Reliance through GOBP was doing the downstream.

But yeah, I think I would say 30%, it goes up and down. Prices were better nowadays. So they had chosen to supply, but otherwise, you know, it is probably better for them to export, right?

See, they don't have any mandate to necessarily supply the domestic market, but roughly 2 is to 1 or 30% is a fair on average.

Govindraj Ethiraj: Right, Manas, thank you so much for joining me.

Manas Majumdar: Happy to do that, Govind. And hopefully we get out of this crisis soon.

Govindraj Ethiraj: Yeah, likewise.

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India's crude oil supply remains secure, and the government has taken steps to ensure uninterrupted availability of energy, according to the government's Joint Secretary, Marketing and Oil Refinery, who spoke at a press conference, as reported by Business Standard. This also seems to be the first detailed press conference focussing on energy after the war broke out.

The official said that India currently consumes about 5.5 million barrels of crude oil per day and imports crude from nearly 40 countries, and that oil marketing companies have secured cargoes from multiple sources to diversify supplies. The official also said that two cargoes were en route to India, adding that cargoes would reach India within a few days and further strengthen supply. She also said refineries in the country are currently operating at very high utilisation levels, with some running at more than 100% capacity.

On natural gas, she said India's total daily consumption stands at about 189 million metric standard cubic metres, or mmscmd. Of this, 97 is produced domestically, while the rest is imported, and about 47 mmscmd of imported gas supply has been affected due to force-measured conditions, though efforts are being made to procure from other sources and suppliers. The government also issued, on the 9th of March, a natural gas control order under the Essential Commodities Act.

Under this order, domestic pipe natural gas and compressed natural gas for vehicles will receive 100% supply without cuts. Industrial units and other consumers will get about 80% of their average supply over the past six months, fertiliser plants about 70%, while refinery and petrochemical units will see a reduction of about 35% to protect priority sectors. So that gives you a fair sense on how it's being prioritised.

And while there's a reduction, clearly it's not a halt at any stage or in any category.

Enticing Investment from China

In a move that has significant geopolitical implications, India has said it'll allow Chinese investment in additional sectors through a fast-track approval mechanism. According to the government's investment secretary who spoke on Wednesday, based on domestic manufacturing needs, he said the government will add more categories to the list of sectors where Chinese investment proposals must be processed within 60 days.

On Tuesday, the government had scrapped the blanket requirement for government approval for companies with up to 10% Chinese ownership, and thus providing a flip to overall cross-border deal-making, which had come to a near standstill since the deadly 2020 Galwan border clash. Under the revised rules, investments in sectors such as electronics, capital goods, solar cells, and battery components would be cleared within 60 days, provided Indian residents retain majority control. There are some other conditions, like the foreign investor must not exercise management control or hold a board seat.

This is also the first relaxation of Press Note 3, which was introduced at that time, that's April 2020, following the conflict with China, and concerns of opportunistic takeovers during the pandemic. But the Press Note 3 regime had effectively shut out fresh Chinese capital and left investment plans on hold. So which categories of investors benefit from this, and what, if any, is the unfinished agenda from a larger foreign direct investment into India point of view? I caught up with Ajay Roti, CEO of tax advisory firm TaxCompass, based out of Bangalore, and I began by asking him who would benefit first.

INTERVIEW TRANSCRIPT

Ajay Rotti: The whole Press Note 3, as it's called, applies to any country which shares a land border with India. And, you know, most investments today accept a few sectors like atomic energy and it could be a few others where there are restrictions like banking, insurance, etc. 100% is allowed automatic route.

But Press Note 3 essentially said, if a country shares a land border with India, then they are not entitled to the automatic route and you need to come for approval. There have been some changes around that now. And who this benefits is essentially anybody who's wanting to invest, either Greenfield, making fresh investments into Indian companies or buying shares of an Indian company from any of the countries which we share a land border with.

Those who are impacted, those are the ones that will benefit. These are essentially seven countries, which is China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan.

Govindraj Ethiraj: Right. So this obviously is aimed at China. So in that context, who is, I mean, what are the likely investments that could come in or were maybe held up?

Ajay Rotti: So there are multiple. One is all the Chinese companies which are operating in India. And, you know, leaving out some of the ones which are not operating because of a variety of reasons, national security, etc.

But take the case of somebody like a Lenovo or BYD, which is building cars here, has a factory. Lenovo has been here for a long, long time, ever since they acquired the personal computing division of IBM. One set of companies is these Chinese companies which are wanting to invest, expand, bring in further new capital and things like that.

Second is those set of Indian companies which were raising capital from Chinese investors. Classic case, BTM had a Chinese investment. Alibaba has invested in quite a few companies at that point.

So there were Chinese funds which are investing into Indian companies, not their own business, but as investment activity. That's a second set of companies which will be impacted, which could benefit from this. So the second one benefits much more than the first piece and we'll discuss that why.

But two broad categories. One is Chinese companies which are running and operating their businesses and operating companies in India. And second, Chinese investors who are investing in India.

Govindraj Ethiraj: Got it. All of this will be confined to electronics, capital goods, solar cells and battery components, or could there be something beyond this?

Ajay Rotti: It can be anything actually. But right now, you know, the sectors you mentioned are the ones where there is interest, but there are no sectoral restrictions. It can be anything actually.

Govindraj Ethiraj: And you said that basically investments via firms like let's say Alibaba or others who took stakes in Indian companies would be the bigger component. Is that because you've seen backlog there or a pipeline?

Ajay Rotti: So let's just go back to as to why Press Note 3 came in in the first place. And this came in around COVID and the stated reason at that time was the government did not want any distress sale and companies, investors, businesses picking up Indian companies at a low valuation, distress valuation, etc. And therefore they brought in this.

My guess and like you rightly highlighted that I think it was aimed at China, but then they made it much bigger to say anybody who shares a land border with India. I don't think anybody in Pakistan or Bangladesh was looking at buying our banks or anything like that. But you know, we were always afraid of China picking up some of the stake in say, telecom, banking, etc.

during that time. So that's the reason that they got it in. Then they said, you need to come to us for approval.

What happened thereafter was there were two broad issues with the Press Note at that point. One is we didn't know who this will apply to. And therefore, if there is a US fund or a Singapore fund, which has some Chinese investors who have invested and they're wanting to invest, at what level do you see Chinese ownership?

How much of percentage of ownership? Should it only be Alibaba investing? Or can it be, you know, Blackstone or somebody else like that investing, but they have a bunch of Chinese investors who hold 5%, 8%.

So that was one piece. Second was when you went for approval, at least my experience, one or two cases that I had handed in the last few years, those some of the approvals were just not moving. There were no rejection, there was no approval, it was just there.

And which I think strategically looking at it could be actually on purpose that you don't want to actually reject, but you keep it open. So there was a lot of backlog there. Now, what the new change does is one, it sets a threshold for that diminishing threshold for this beneficial ownership.

Therefore, if there's a fund which has some Chinese investors coming today, technically, it will be automatic route. Because if the Chinese investment there is less than 10%, then it's still okay. Which is why I said the first set of things, which is where Indian companies are today looking for investments, they may actually get into this automatic route and get it in because it may not be fully Chinese.

Second, 60 day time limit they have put for approval process. So these are two things which should make it better.

Govindraj Ethiraj: Right. So now seen in the context of larger FDI into India, are there any other areas where you feel we need to do something similar or expand definitions or ease up not just with China, but anywhere else?

Ajay Rotti: We don't have too many restrictions now, like we were having even a few years back, most of the sectors today are relaxed. I think banking is one place where there's some interest and you know, there are a couple of banks which are wanting to invest, they still need approvals, RBI has to approve, they also need, there is a limit on foreign investment. There could be some relaxation in some of those if the government feels fit.

But otherwise, I think largely, most of it is automatic route, except for this Presto 3 situation, which was there. Today, if there's money that has to come in from Europe or US, etc, there are no restrictions, except for a handful of sectors, which I don't think they may immediately open up, like I said, you know, atomic energy, space and things like that.

Govindraj Ethiraj: Yeah, but you mentioned banking, and that's one area, banking and financial services, where we have seen FDI come in, in recent months. So is there something that can be done or needs to be done specifically there?

Ajay Rotti: That again, you know, depends on whether the government's policy they want to do that or not, and especially also given that there are some public sector stake sale that they will be doing to come up to, you know, 75% public float, for example, Bank of Maharashtra happened and things like that. Right now on banking, foreign investment is allowed up to 74%. And 49% is automatic route and 49% to 74% is government approval and beyond 74%, it's not allowed.

Therefore, can there be some relaxation there either taking up the automatic route, increasing it fully, similar thing, insurance, it was there and they've actually relaxed it. Public sector banks FDI is allowed only up to 20%. I don't know if there's some scope, like I said, other than banking, I don't see too much avenue available for them to relax the FDI regulations.

Govindraj Ethiraj: Right. Ajay, thank you so much for joining me.

Ajay Rotti: Thank you.