picture for representation
picture for representation

The International Energy Agency (IEA) has some encouraging news for India's energy sector. It says that India's energy demand will increase more than that of any other country over the next two decades. And, the country is set to overtake the European Union as the world's third-largest energy consumer by 2030.

However, there is a darker side to it. With ever-growing energy consumption, India is now the third-largest emitter of carbon

dioxide, although it is still well behind China- the world's largest emitter, and the United States.

Creating infrastructure :

To emerge as a responsible power, India must reduce its carbon footprint. A gas-based economy is crucial in this regard and India must increase the share of clean energy in its overall mix.

A lot of work is being done in the direction of developing 'One Nation, One Gas Grid'. This grid is expected to help improve clean energy access, and also aid in the development of city gas projects.

One nation one grid initiative will expand the natural gas grid from the previous 17,500 kilometers to 34,500 kilometers. Next 16,000 kms is expected to be achieved in the next 4-6 years. The center has earmarked Rs 7.5 lakh crore for that purpose.

Cut GST for better reach:

Along with the infrastructure building, bringing gas under GST is also extremely vital. It will reduce the cost of gas, helping to expand its reach among the manufacturers and city gas projects.

At present, natural gas attracts central excise duty, state VAT, and central sales tax. CNG price includes excise duty of 14% and value-added tax (VAT). It varies from 5-24% from state to state. Despite this burden of taxes, CNG price is nearly half of petrol and diesel prices. If a GST rate of 5-18% is applied, it will bring the selling prices down substantially thereby further improving its affordability.

In addition, the input tax credit facility will help companies to offset natural gas-related taxes, improving their profitability. With cheaper natural gas, user industries will also benefit from reduced operating expenses. Currently, fertilizer is the largest gas-consuming sector accounting for 29% share. It is followed by city gas distributors at 18%, and power producers at 17%.

Closing comments:

Natural gas contributes nearly 6% of India's energy mix. It is significantly low compared to the global average of ~24%. The government has set the target of pushing it to 15% by 2030. The target appears out of hand unless the government walks the talk and reduces the GST on natural gas.

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