Commodity Dependency Risk: Lessons from the Shadows of Boom and Bust | Quick ₹eads

by Karnivesh | 5 February 2026

India's economy has long danced to the rhythm of commodities, from the black gold of oil to the lifeblood of coal. But beneath the surface prosperity lies a hidden vulnerability that can turn abundance into adversity overnight.

Commodity dependency risk refers to the economic peril when businesses or sectors rely excessively on volatile raw materials like oil, coal, metals, or agri-products for revenue and operations. Price crashes, supply disruptions, or policy shifts can cascade into losses, layoffs, and stalled growth, as seen in several Indian business stories.​

Reliance Industries' Oil Gamble

Consider Mukesh Ambani's Reliance Industries, once the poster child of India's oil refining prowess. In the early 2000s, Reliance built the world's largest grassroots refinery at Jamnagar, Gujarat, betting big on crude processing. Oil imports fueled 70-80% of its energy business revenues at peak, turning it into a cash machine during high-price booms.​

But the 2014-16 oil price plunge from $110 to $30 per barrel slashed refining margins. Upstream exploration costs ballooned, debt mounted to fund pivots, and EBITDA dipped sharply. Reliance survived by diversifying into telecom with Jio, retail, and petrochemicals non-oil segments now contribute over 60% of profits. This shift insulated it, but the oil trough exposed how commodity swings can pressure even giants, forcing costly transformations.​

Coal's Stranglehold on Power Firms

Power producers like NTPC and Adani Power know coal dependency all too well. India imports 25% of its coal needs despite vast domestic reserves, with thermal plants generating 70% of electricity. Businesses planned capacities assuming steady Rs 3,000-4,000/tonne prices.​

The 2021-22 global coal surge to Rs 15,000+/tonne sparked a crisis. Adani Power posted forex losses on imported coal contracts, while NTPC faced input cost hikes amid fixed tariffs. Utilization rates fell from 70% to under 60% as renewables ramped up, stranding assets. Many firms hedged via swaps or passed costs to consumers, but smaller players like Jaiprakash Power teetered on bankruptcy. Climate pledges under Paris amplified risks, with coal auctions yielding low bids due to green shifts.​

Metals Makers in the Volatility Vortex

Tata Steel and JSW Steel grapple with imported coking coal and iron ore flux. India produces 90% of global steel demand growth but imports 70% of prime coking coal from Australia. Price volatility up 50% in 2021, down 30% in 2023 squeezes margins in a low-value-added industry.​

During COVID supply crunches, Tata's Europe ops bled Rs 10,000 crore quarterly; domestically, it pivoted to green steel pilots. JSW invested in Mozambique mines for backward integration. Yet, rupee depreciation on import bills adds sting every $1 fall worsens costs by thousands of crores annually for steelmakers.​

Agri-businesses face parallel woes. ITC's tobacco and spices units, or Godrej Agrovet's soybean empire, suffer monsoon failures or global dumps. The 2022 edible oil import spike from Ukraine war hiked costs 40%, hitting margins for firms like Adani Wilmar.​

Steelcase: A Diversification Win

Not all tales end in turmoil. JSW Steel's Sajjan Jindal learned from cycles, acquiring Bhushan Power in distress and ramping captive power, reducing coal exposure by 20%. Colouron paints, under diversified Asian Paints, buffered commodity hits via pricing power and R&D for alternatives. These firms built buffers: long-term contracts (50% volumes), sovereign funds-like reserves, and value-added products like coated steel.​

Navigating the Risks: Practical Shields

Indian businesses mitigate via hedging firms use MCX futures for oil/coal, saving 10-20% on swings. Supply diversification: Vedanta sources bauxite from Indonesia, Guinea alongside Odisha. Sovereign wealth-inspired reserves, like ONGC's, park windfalls.

Government aids with PLI schemes for metals/chemicals, pushing localization. Yet, UNCTAD warns 60% of developing nations, including India, risk prolonged dependence without action.​

A Resilient Roadmap Ahead

Commodity risks amplify in India: rupee volatility, import reliance (80% oil), and green transitions threaten $500B annual import bills. IMF notes a 10% oil shock cuts GDP 0.2-0.5%.​

Firms must weave broader strategies: invest in renewables (Tata Power's 70GW green goal), process commodities locally (alumina from bauxite), and skill for high-tech manufacturing. Leaders who anticipate cycles thrive, turning risks into reinvention opportunities.

India's business tapestry strengthens not by one dominant thread, but many interwoven strands.