Former GAIL chief Sandeep Kumar Gupta states India’s natural gas growth is stalled by high taxation rather than infrastructure limits. With import terminals and pipelines operating at roughly half capacity, the exclusion of gas from GST and high excise duties are cited as primary barriers to reaching the 15% energy mix target.
India’s ambitious plan to increase the share of natural gas in its energy basket from approximately 6% to 15% faces significant hurdles, according to recent insights from former GAIL and Mahanagar Gas (MGL) Chairman Sandeep Kumar Gupta. While the common perception suggests a deficit in pipelines and import facilities, the reality is that existing infrastructure is underutilized.
Underutilization of Infrastructure
Data indicates that India’s current LNG import terminals are operating at roughly 50% of their total capacity. Similarly, existing gas pipeline networks are functioning at only 50% to 60% of their actual capacity. Despite the expansion of city gas distribution networks into 307 geographical areas, the expected surge in consumption has not materialized. This mismatch between built capacity and actual usage suggests that the sector’s primary problem is not a lack of physical assets, but rather the cost of the fuel for the end consumer.
The Impact of Current Taxation
The core issue identified is the complex tax structure surrounding natural gas. Because natural gas currently sits outside the Goods and Services Tax (GST) regime, businesses are unable to claim input tax credits. This creates a cascading tax effect that increases costs throughout the supply chain. Furthermore, there is a stark disparity in the tax burden for cleaner fuels. CNG vehicles currently face a 28% GST, whereas electric vehicles enjoy significantly lower tax rates. The 14% excise duty on CNG further compounds the pricing disadvantage, making it less competitive compared to other energy alternatives. Without a move toward GST integration or tax rationalization, these costs are likely to continue weighing on demand growth.
Implications for the Energy Transition
The government’s target to reach a 15% gas-based energy mix is becoming increasingly difficult to meet as demand remains subdued. While experts such as ICICI Securities analyst Probal Sen continue to view CNG as a vital transition fuel for the coming decade due to its cleaner profile, the pace of adoption remains tethered to pricing. Investors in the sector, including major players like GAIL, Indraprastha Gas, and Mahanagar Gas, may monitor whether policy changes such as the inclusion of natural gas under GST are eventually implemented. The ability of these companies to improve volume growth will largely depend on the government’s willingness to address the tax-driven price gap, which remains a key monitorable for the sector’s financial performance.