New Delhi – A potential move by the Indian government to reduce the Goods and Services Tax (GST) on small internal combustion engine (ICE) cars has ignited a debate among industry stakeholders about its implications for the country’s electric vehicle (EV) ambitions. The proposal, which suggests lowering the GST on conventional small cars from 28% to 18%, is aimed at reviving a sluggish automotive market and providing relief to consumers. However, it has raised concerns that it could inadvertently slow down the progress of India’s green mobility transition.
Currently, EVs enjoy a significantly lower GST rate of 5%, a key policy lever that has been instrumental in making them more price-competitive and encouraging their adoption. This tax differential has played a crucial role in narrowing the upfront cost gap between EVs and their ICE counterparts, a major barrier for many potential buyers. Experts fear that by reducing the tax on conventional cars, the government risks eroding this crucial advantage, potentially making consumers think twice before opting for an electric vehicle.
The automotive industry has been facing a period of subdued demand, and a tax cut would undoubtedly provide a much-needed boost to sales volumes for manufacturers of small cars. Proponents of the move argue that it would stimulate economic activity, protect jobs in the traditional auto sector, and make personal mobility more affordable for a larger segment of the population. They contend that a healthy ICE market can coexist with a growing EV market, and that the tax cut is a necessary short-term measure to support the overall health of the industry.
On the other hand, environmental advocates and players in the EV ecosystem argue that the timing of such a move is counterproductive. They believe that instead of reducing taxes on polluting vehicles, the government should double down on its support for clean mobility. They suggest that any fiscal stimulus should be directed towards further strengthening the EV ecosystem, such as by enhancing charging infrastructure, providing more attractive subsidies, or funding research and development in battery technology. The debate highlights the complex challenge facing policymakers: how to balance the immediate economic needs of the traditional auto industry with the long-term strategic imperative of a sustainable, electric-powered future. The final decision on the GST rate will be a critical indicator of the government’s policy priorities in the coming years.
