India’s domestic sales of compressed natural gas (CNG) vehicles are projected to reach 1.1 million units by the end of this fiscal year, according to a Crisil report. This growth is driven by the government’s focus on cleaner fuels and the rapid expansion of CNG infrastructure. The number of CNG vehicles in India will rise to 7.5 million, marking a threefold increase from 2.6 million in fiscal 2016, reflecting a compound annual growth rate (CAGR) of 12%.
The rapid adoption of CNG vehicles has been bolstered by a significant expansion in the number of CNG filling stations across India. The number of stations is expected to exceed 7,400 by fiscal 2025, up from just 1,081 in fiscal 2016, resulting in a CAGR of about 24%. This expansion has alleviated congestion at filling stations, improved the overall customer experience, and enhanced the operational efficiency of city gas distribution (CGD) networks.
The availability of over 30 CNG car models, up from just a handful previously, has also contributed to the surge in adoption. The commercial vehicle segment has seen increased adoption due to notable cost savings, with CNG penetration in this segment currently at 10-11%. The two-wheeler segment is also growing with the introduction of CNG variants, while the three-wheeler segment, with a penetration level of 28-29%, faces competition from electric vehicles (EVs).
Despite the strong growth, the Crisil report identifies challenges that could hinder the continued development of CNG infrastructure and its adoption. One major concern is the reduction in Administered Pricing Mechanism (APM) gas allocation for CNG. The allocation will decrease from around 68% to 51% in October 2024, further dropping to 37% in November 2024 before being revised to 50% in January 2025. This shift has raised uncertainty and increased gas sourcing costs for city gas distributors, potentially leading to CNG price hikes of Rs 4-6 per kg. However, most CGD companies have opted for limited price hikes of Rs 1-3 per kg to maintain competitiveness, which has impacted their margins.
Furthermore, CNG’s growth faces competition from alternative fuels, including electric mobility and hybrid technologies. To ensure the long-term viability and competitiveness of CNG, the report recommends several policy measures. These include bringing natural gas under the GST regime to standardize taxation and reduce costs for consumers and businesses. Reducing excise duty on CNG would help keep prices affordable and promote greater adoption, while offering tax incentives and subsidies for CNG vehicles could further increase their penetration, especially in urban areas.
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