Green acceleration: Tax policy should be recalibrated to speed up India’s transition to clean mobility
India’s GST reform sets the stage for a cleaner auto future—but will policymakers and industry act decisively in favour of a green mobility revolution? We need tax levies that are better calibrated to incentivize all kinds of enabling technologies.
India’s recent goods and services tax (GST) rationalization is an important step, but its significance goes beyond simplifying tax slabs. The reform provides clarity that the auto industry has long needed. Yet, clarity alone is not enough. What matters now is how this policy can accelerate the adoption of cleaner and more sustainable mobility options that will define India’s economic and environmental trajectory for the next decade.
We stand at a crossroads: the government has given the sector a cleaner baseline, but the real challenge and opportunity both lie in aligning the country’s fiscal policy with its long-term green mobility goals.
For years, automotive taxation revolved around conventional parameters like engine size, vehicle length or fuel type. That made little sense in a world moving rapidly towards electric vehicles (EVs), hybrids and alternative-fuel technologies. Today, with EV penetration still in single-digits and hybrid and flex-fuel adoption just beginning, policy must explicitly reward these technologies. GST rationalization clears a lot of structural clutter, no doubt, but unless incentives are tied more closely to cleaner technologies, this clarity risks being underused.
Taxation policy is a strategic tool to shape India’s mobility landscape whose benefits need to be appreciated and maximized.
The potential is enormous. Electric, plug-in hybrid and flex-fuel vehicles offer multiple benefits: they reduce emissions, lower dependence on imported fuels and catalyse domestic manufacturing and innovation. Yet, their adoption remains constrained by higher upfront costs and limited support infrastructure.
Here, GST can make a real difference. A tiered approach that sets zero GST for battery EVs, 5% for plug-in hybrids and flex-fuel vehicles, and higher rates for conventional internal combustion models would send out a clear signal. It would message that India values green innovation and sustainability over inertia in the auto sector, and helps consumers make choices that align with national priorities.
Policy stability is critical for India to build a self-reliant green mobility ecosystem. The auto sector cannot invest in charging infrastructure, battery supply chains or flex-fuel ecosystems if policy keeps shifting every few years. A 10-year horizon for GST policy would provide the certainty needed to scale domestic capabilities. Once clean-tech penetration reaches 20–25%—a realistic milestone within 5 years—the structure can be recalibrated.
Even then, relative ecological advantages among technologies must be preserved to ensure the policy intent remains unambiguous. Without this, manufacturers and investors would hesitate and the momentum for green mobility may stall before it can achieve meaningful scale.
Some may argue that the government’s removal of the compensation cess and its consolidation into a flat 40% GST for large non-electric vehicles will benefit consumers anyway, and that market forces alone can drive adoption. But while rate simplification is welcome, its net relief is uneven and businesses face a problem of stranded cess credits that can no longer be offset, creating financial friction.
Left to interpretational ambiguities, auto manufacturers may be reluctant to pass on the benefits or invest aggressively in green technologies. In my view, relying solely on market dynamics risks leaving India behind in the global race for clean mobility.
This is not just about economics; it is about environmental stewardship and strategic independence. Urban air quality is worsening, our oil import bills remain high and the world is clearly moving towards electrification. Every policy choice we make today shapes the next decade’s trajectory.
GST rates, if deployed correctly, can act as the lever that aligns incentives for consumers, industry and investors alike. It can make clean vehicles not only viable, but also desirable, while reinforcing India’s commitment to a future where mobility is sustainable and self-reliant.
The broader message: India must treat GST not as a routine housekeeping exercise, but as a strategic instrument to define its mobility future. While the reforms so far are welcome, the next step must clearly be anchored in the country’s long-term vision for green mobility.
This means not just setting clear tax incentives and committing to policy stability for an extended period, but also supporting infrastructure development. Only then will we see widespread adoption of EVs, hybrids and flex-fuel vehicles, alongside the robust domestic supply chains, skills and technology capabilities needed for India to become truly self-reliant.
Broadly, our policy framework must shape a future in which clean mobility is the default choice rather than a niche option. India has an opportunity to assume and signal policy leadership on this agenda, one that simultaneously prioritizes environmental responsibility, industrial competitiveness and consumer empowerment.
A policy foundation has been laid and the path forward is clear. It is now up to policymakers and Indian industry to act decisively, ensuring that India’s roads have not just more vehicles, but cleaner, smarter and greener ones.
The author is an automobile industry veteran.
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