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09/20/2021 | News release | Distributed by Public on 09/20/2021 09:05

India cuts GST tax on biodiesel for blending

India has reduced the goods and services Tax (GST) on biodiesel supplied to oil marketing companies (OMCs) for blending with a view to incentive biofuel production, but market participants suggest the impact could be limited.

The GST on biodiesel for diesel blending will be reduced to 5pc from 12pc, from 1 October, the finance ministry said. "This decision will enable faster transition to green fuels and give an impetus to the biodiesel industry in the country," oil minister Hardeep Singh Puri said.

Market participants welcome the reduction in GST, but whether it will increase blending remains to be seen. "Concerns over biodiesel availability continues. As a result, we may not see any significant increase in blending in the near term," Crisil Research director Hetal Gandhi said.

Feedstock availability for biodiesel production remains low in India, and less than 0.1pc of biodiesel is blended into diesel in India currently, while the government has an indicative target of 5pc blending by 2030. This compares with a 20pc ethanol blending target to gasoline (E20) by 2025.

"Biodiesel blending is yet to take off in the country and is miniscule compared with ethanol blending, which has taken off in the past five years," consultancy Rystad Energy vice-president Parul Chopra said. But biodiesel blending would be more beneficial for the country, because diesel consumption is double that of gasoline consumption in India, he said.

"The reduction in GST on biodiesel will improve the economics for producing the fuel, but the impacts for OMCs would not be significant because the quantities remain small, ratings agency Icra vice-president Prashant Vasisht added.

As well as the reduced GST on biodiesel, the GST council announced that gasoline and diesel would not be brought under the tax regime, after the High Court of Kerala ordered it to consider their inclusion. Gandhi said this was because it would have resulted in a significant loss of revenue for the government.

Retail diesel and gasoline prices are holding near all-time highs, with diesel being sold at 96.19 rupees/litre ($1.31/l) in Mumbai today and gasoline retailing at Rs107.26/l. Prices have gone up in line with higher global crude oil prices and domestic taxes, which make up 60pc of the retail prices.

Demand for gasoline rose above pre-pandemic levels at 576,000 b/d in the first half of this month, up by 8pc compared with the same period two years earlier, supported by an increase in personal transport. Meanwhile, diesel consumption was at 1.04mn b/d in the first two weeks of September, still down by 7pc compared with the same period in 2019, on higher prices and monsoon-induced fall in trucking activities.

By Sathya Narayanan