How Will Tariffs Affect India’s Energy Ecosystem?
Tariffs tend to inflate production and transportation costs, raising prices across supply chains. While energy products are mostly exempt from Donald Trump’s unpredictable tariff decisions, that doesn’t mean it’s business-as-usual for India’s energy ecosystem.
Trump’s efforts to refashion the global trade order are reshaping energy routes and realigning global markets. For India, this means navigating shifting trade dynamics, new opportunities, and emerging constraints.
Solar Energy and Tariffs
India exports photovoltaic (PV) modules to the United States. They are currently exempt from the 26% tariff applied to many other imports. The US solar market is dominated by equipment imported from China and Southeast Asian countries. However, successive administrations have saddled Chinese solar manufacturers with tariffs of almost 60% on their solar products. Anti-dumping and countervailing duties have also raised prices for solar components from Vietnam, Cambodia, Malaysia, and Thailand.
Some analysts have argued that the tariff differentials create an opportunity for Indian PV manufacturers to gain a stronger foothold in the US market. Currently, India-made modules make up just 4.7% of total US solar imports, compared to 87.5% from Southeast Asian countries—many of whose production facilities are Chinese-owned. India could, in theory, position itself as a non-Chinese, competitively priced alternative.
Competing in a Saturated Market
But capturing market share in the US won’t be easy. The Inflation Reduction Act (IRA) of 2022 turbocharged domestic solar manufacturing in the United States. As of October 2024, the US had become largely self-sufficient in PV module production.
Moreover, American developers have stockpiled low-cost solar panels—enough to meet much of their expected demand this year—following repeated waves of tariffs on Chinese components. Indian exporters, therefore, face a saturated and highly competitive market.
About 20–25% of India’s PV module production is exported, primarily to the US. Some firms, like Waaree Energies and Vikram Solar, export up to 50% of their output. To mitigate regulatory risks and strengthen their presence, companies like Waaree have ramped up US-based production—from 1.6 GW to 3.2 GW. But this also means their cost advantage from manufacturing in India disappears, as US-based production costs now align with domestic producers.
Given these shifts, Indian PV manufacturers may need to explore growth opportunities in other markets—particularly in Europe and Asia.
An Import-Dependent Value Chain
Developing other markets, however, will take time and a confluence of circumstances. Many parts of India’s solar value chain are still dependent on imports. Around sixty percent of India’s solar manufacturing infrastructure is imported from China and Southeast Asia. It has introduced a bunch of initiatives, such as a Production-Linked Incentive (PLI) scheme to encourage manufacturing and an approved list of domestic solar equipment manufacturers for state-backed projects, to wean itself off imports. But the cost of producing solar cells domestically remains high—about 80–90% more than imports— because the country is yet to develop economies of scale. Industry experts estimate that India will not achieve cost-competitive, self-sufficient solar cell manufacturing until at least 2027.
Coal, Oil, and Energy Security
The Trump Tariff tensions could also ripple into fossil fuel supply chains. India is the third-largest consumer of coal and oil globally, and together these two fuels account for around 88% of its energy mix. Any supply disruption could seriously affect the broader economy.
Fortunately, India’s sourcing strategy provides insulation. Indonesia, South Africa, and Russia supply roughly 78% of India’s coal imports, while the US accounts for just 6.3%. India is also the world’s second-biggest coal producer.
However, it depends heavily on imports, primarily from Australia and Russia, for coking coal, which is used extensively in the steel industry. Analysts write that Trump’s tariffs may reconfigure India’s coking coal supplier list and increase import costs. This is because retaliatory tariffs against the US from China might translate to fewer imports of US coking coal. Australia will benefit from the break in trade relationship. India, which has a significant trade deficit with America, will pick up the slack, providing an alternate market for US coal. The switch will likely boost Australian coking coal prices because India and China are the biggest importers of coking coal in the world.
In oil markets, a “problem of plenty” is emerging, according to ONGC Chairman Arun Kumar Singh. For a developing economy like India, this abundance translates into relatively stable or declining prices—good news after the post-pandemic volatility. Even if OPEC cuts production, global oversupply should help cushion price shocks and ensure reliable access to petroleum.
The catch here is that a decline in oil prices will affect the bottom line for Oil and Natural Gas Corporation (ONGC), India’s state-run oil exploration and production company. A looming recession will crimp demand and exert downward pressure on oil prices. According to ONGC’s finance chief, prices below $60 will make oil economically uncompetitive for the company, forcing India to rely on imports from the US for the fuel.
