Reduction of GST on CNG can help adoption of cleaner fuel vehicles

Auto majors like Maruti Suzuki and Bajaj Auto are among many other industry members who have urged the government to rationalise GST on CNG vehicles.

By Ketan Thakkar and Mayank Dhingra calendar 16 Nov 2023 Views icon2724 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Reduction of GST on CNG can help adoption of cleaner fuel vehicles

The leading vehicle makers in the country are pitching for a lower tax for alternate fuels like CNG and hybrid vehicles in order to promote adoption of cleaner and more efficient fuel for the end consumer till the time the cost structure and infrastructure for battery electric vehicles mature.

Maruti Suzuki, Bajaj Auto and a few other industry players are urging the administration to look at the compressed natural gas segment favourably, which will bring down the vehicle acquisition cost and accelerate the adoption and thereby help in reduction of fuel import bills.

Rakesh Sharma, ED, Bajaj Auto told Autocar Professional that currently almost 60 percent of internal combustion engine three-wheelers are powered by CNG and that Quadricycles and 2ws can also be powered by CNG.

“As the CNG network expands and CNG becomes easily as well as widely available, more and more vehicles can shift to CNG. OEMs like us will also get encouraged to develop all types of vehicles which use CNG as a fuel. This becomes a unique opportunity where all stakeholders, the government, the consumers, the society at large and the OEMs, all stand to win. Therefore, a strong case can be made for the reduction of GST on CNG based vehicles, this will hasten adoption and the development of newer vehicles as well as use cases,” added Sharma.

Bajaj Auto is working on a CNG powered two-wheeler which is scheduled for a market entry within a year's time to address the total cost of ownership challenge faced by prospective entry bike owners.

There was a proposal by the Oil and Gas Ministry in 2019, wherein it had requested the Finance Ministry to bring down the GST on CNG vehicles to 5 percent, but not much progress has been witnessed in this regard. However, what has changed is the overt exposure to EVs and the government too has mandated a 100 percent EV transition in the coming decade, with Prime Minister Narendra Modi himself urging the industry to move to multi-fuel strategies on the path to carbon neutrality.

RC Bhargava, Chairman of Maruti Suzuki in the post Q2 earnings call reminded the media that the company has been consistently saying that a 100 percent penetration of EV is not a “realistic plan” for a long time to come. “The government has recognised the importance of other technologies in the market and has said that a mixture of technology will be required to achieve the carbon neutrality goals in India, besides EVs, hybrids, biofuel and CNG — all have been mentioned,” added Bhargava.

While the market leader will be entering the Battery Electric Vehicle segment next financial year, it has been playing a leading role in driving the CNG penetration in the country. In the first half of this fiscal year, about 24 percent of the company’s sales came from CNG powered vehicles and at the end of the coming decade, it expects CNG vehicles to account for a third of its total sales. The company expects BEVs to account for 15 percent of its total sales and hybrids will make up for 25 percent as per its FY31 plan.

Explaining the rationale, Shashank Srivastava, Senior Executive Officer, Sales and Marketing at Maruti Suzuki said: “We need to support any fuel that is efficient and helps achieve the overall emission reduction targets. CNG holds a bright future in that sense. Therefore, we maintain our stand that there should be special support for hybrids and CNG vehicles.” Natural gas emits 25 percent less Co2 than petrol on every unit of energy produced and it is lighter on the wallet of the country's import bills.

On hybrids, Bhargava said "On a well-to-wheel basis, hybrids will be cleaner than EVs for the next decade at least,  given that 75 percent of power generation is from coal." He hoped that the government will see rationale and view hybrids and CNGs with a favourable lens. “Why should there be a 38 percent GST difference between hybrid and EVs, if that happens, growth of other alternatives should be even faster, let’s see what happens.”

This feature was first published in Autocar Professional's November 1, 2023 issue.

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