Fiscal pressures and rising energy import dependence add urgency to long-standing reform debate.
India’s GST Council convenes next week facing pressure to bring natural gas and aviation turbine fuel under its tax net — a decision that could reshape two critical sectors and offer relief from mounting fiscal pressures.
The September 3-4 meeting will examine whether to end the anomalous treatment of both fuels, which remain outside the goods and services tax framework. Currently subject to a patchwork of state VAT and central excise duties, the arrangement has created what industry executives describe as a compliance nightmare.
The timing couldn’t be more awkward. India’s energy import bill has climbed above $170bn annually with little sign of abating. With crude oil imports accounting for 85 per cent of consumption, any policy that encourages more efficient consumption carries strategic weight well beyond tax administration.
“The current system fragments markets and destroys value,” said Subhash Kumar, who heads the Association of CGD Entities and previously ran state oil giant ONGC. “GST inclusion would restore sanity to energy pricing.”
Industry veterans reckon momentum is building after oil companies held preparatory talks in Delhi last month. “There is a strong likelihood for inclusion,” Kumar believes. “Gas meets all the right criteria; ATF too.”
The stakes are considerable. India’s city gas distribution network, now worth $11.3bn, supplies a fifth of the country’s gas demand. That share is set to climb as the network doubles from 20,000km to 50,000km of pipelines by 2032.
Policy architects have deliberately crafted accommodative frameworks to fuel this expansion. Industry insiders describe it as the most favourable environment for gas infrastructure development in a decade.
“The CGD industry is extremely thankful to the Petroleum Ministry and the regulator PNGRB for having created conducive policies for the CGD value chain,” said Kumar.
Echoing him, a senior official at PNGRB, who preferred anonymity, explained that these policies have been the enabling factor to build up gas infrastructure across the country to bolster the vision for gas economy.
The accommodative stance reflects urgent realities. India’s energy demand is projected to grow faster than any major economy over the next decade. Meanwhile, fiscal pressures limit the government’s ability to subsidise energy transitions through direct spending. Tax reform offers a cost-neutral path to supporting cleaner fuels — an attractive proposition for cash-strapped administrations.
For airlines, the arithmetic is even starker. Aviation turbine fuel represents up to 40 per cent of operating costs, and carriers argue GST credits would provide operational relief without headline price cuts.
The tax treatment has created perverse incentives that work against India’s broader energy security goals. Newer alternatives such as compressed biogas and sustainable aviation fuel qualify for GST credits while their conventional counterparts face the old regime.
“Just saying that the government is promoting SAF and CBG does not achieve much,” Kumar stressed. “Until ATF and gas are brought under GST, there is no real benefit in promoting SAF or CBG because they have little chance of succeeding on their own.”
The move aligns with the Prime Minister’s vision to raise natural gas consumption from its current 6 per cent share of the energy mix to 15 per cent by 2030. That’s a target which depends heavily on CGD expansion — something industry argues would accelerate under unified GST treatment.
“This is perfectly in line with the Prime Minister’s gas economy vision,” Kumar explained. “Without fiscal alignment, we cannot hope to achieve these ambitious consumption targets.”
The economic logic has strengthened as India confronts twin challenges: containing its energy import bill while meeting rapidly growing demand. Any policy that accelerates gas adoption addresses environmental and economic imperatives simultaneously.
Industry lobbying is intensifying ahead of the Council meeting. “We have written to the government before, and will do so again,” Kumar said. “This is not a new demand; it is an ongoing one.”
Yet the politics remain treacherous. State governments fear revenue losses from surrendering their VAT powers over these lucrative fuels. The Centre faces the delicate task of convincing states that long-term economic benefits outweigh short-term revenue concerns.
The decision will signal whether India’s tax reformers can overcome entrenched interests to complete the GST project while addressing the country’s most pressing energy challenges.
For gas distributors and airlines, next week’s outcome could determine their competitive position for years. For India’s broader economy, it may prove equally consequential in shaping the country’s energy future.
The author is the former Executive Director of Oil and Natural Gas Corporation (ONGC)
He is the Founder and Editor-in-Chief of Newscript Energy World