GST: Higher rates on biodiesel may hurt Modi's clean energy plans

The biodiesel industry feels the recently announced goods and services tax will make it costlier than diesel and uncompetitive as a clean energy fuel.  

In the GST rates announced recently, biodiesel, ethanol and other mixing products will be taxed at 18 per cent. 

Biodiesel has attracted zero excise duty for the past 10 years and producing states like West Bengal, Uttar Pradesh, Uttarakhand, Chhattisgarh and Rajasthan charge zero value-added tax (VAT) on it.

The petroleum ministry is planning 5 per cent biodiesel blending by 2022. With this, the industry was expected to face annual demand of 6.75 billion litres, with a business size of around Rs 27,000 crore.

“It is a paradox that a product like biodiesel that can reduce pollution, specifically particulate pollution, is slotted in a high tax slab. The high tax will restrain mass consumption by even existing users like oil refiners, railways and transporters. Farmers will switch back to polluting fuels,” said Sandeep Chaturvedi, president, Biodiesel Association of India.

The industry has produced and supplied close to 0.5 million tonnes till date and is gearing up to deliver up to one million tonnes of biodiesel by 2019. The high GST rate is likely to derail these expansion plans.

"Prime Minister Narendra Modi is pushing for Swachh Bharat with a cess and cutting consumption of crude oil to push green fuels. The GST rate on biodiesel contradicts the government’s efforts,” Chaturvedi added.

“The government will not benefit as the industry will. The industry needs promotional tax and other policies. The GST rate has come as a major setback to the biodiesel sector,” said VK Jain, executive director, Ruchi Soya Industries.

“We also seek implementation of the National Policy on Biofuels,” said NS Balamukundan, managing director, Yantra Fintech.

Around 3,700 outlets in the country supply biodiesel and the petroleum ministry aims to increase this number to 10,000 by August. India has an installed capacity of 1.2 million tonnes of biodiesel.

State of affairs
  • In India, biodiesel is used for blending with diesel
  • It is a part of the overall strategy by the petroleum ministry to cut energy imports and carbon emissions 
  • Currently, 3,700 fuel retail outlets use biodiesel, while the railways uses it for 5% blending of diesel it consumes
  • Centre has a target to cut crude imports by half by 2030 
  • In 2015, the MoPNG permitted direct sale of biodiesel (B100) to bulk consumers such as the railways, shipping and state road transport corporations
  • Currently, the railways is the largest consumer of diesel in India, with an annual consumption of 2.8 billion litres, of which biodiesel blending comes to around five per cent

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel