New Delhi: Cutting the Goods and Services Tax (GST) on E85 fuel to the lowest slab of 5 percent is the key lever to carry India from its 20 percent ethanol blending milestone into a full flex-fuel economy, said Vikram Gulati, country head and executive vice-president, Toyota Kirloskar Motors, at a fireside dialogue convened by the Global Biofuels Alliance (GBA) on Tuesday.
Follow Energy Watch on X
The dialogue, titled "The Flex-Fuel Horizon: Scaling Blending Mandates through Collaborative Global Research," was held at the launch of the GBA's Global Biofuel Champion Fellowship and featured leaders including Gulati, Ravi Gupta of Renuka Sugars and Indian Oil Corporation Chairman AS Sahney. India achieved its 20 percent ethanol blending mandate ahead of schedule in 2025, a milestone the GBA said generated foreign exchange savings of nearly USD 16-17 billion and injected over USD 12.5 billion in additional income into agricultural communities.
Gulati said flex-fuel technology was proven and robust, but that the consumer economics needed policy support to take off. He said the additional cost of manufacturing a flex-fuel vehicle was "roughly (Rs 40,000-50,000), depending on OEM to OEM," but that the gap widened sharply by the time it reached the buyer.
"When it finally lands [with] the consumer, with the same rate of GST that he is going to pay and the same rate of road tax as compared to a petrol vehicle, this delta inflates to something like 80,000 rupees," Gulati said. "Now that's a heck of a lot of money for a consumer to pay for a vehicle which is similar, the only difference being that it has flexible capabilities."
He said ethanol's lower energy density added an operating cost on top of the upfront premium. "You are still looking at 25-26 percent of fuel efficiency loss that the consumer has to deal with," he said.
Gulati described the equal tax treatment of flex-fuel and petrol vehicles as an unintended disincentive that policy could correct. "It's a kind of inadvertent penalty, if I can use that word. If you were to just remove that, as compared to [petrol], that will go a long way," he said.
"If we can get the ethanol at the lowest slab of GST for E85 to 5 percent, that will create that gap. Then the initial momentum can come in, where the OEMs can start to really invest for scale and bring down the delta," he said, adding that this would set off "a virtuous cycle," as seen in Brazil's flex-fuel transition.
He credited the launch pricing as a starting point. "The government has already started the E85 programme with even a differential of 20 rupees in comparison to petrol. That's roughly around 20 percent," Gulati said.
Beyond tax, Gulati said a durable policy should be tied to emissions rather than to any single technology. "You really have to start building policies that are linked to carbon. Ultimately, it's fossil fuel and carbon emissions that we're all fighting against. So if you link all your policies around carbon, on a life cycle basis, that's where the world is heading," he said.
He flagged awareness as the final piece, saying many buyers wrongly believed high-ethanol fuels could be used in any car. "There's so much lack of awareness amongst consumers. They're confused," he said, noting that E85 and E100 are meant only for flex-fuel vehicles and not for conventional internal combustion engines.
Sahney said E85 would be scaled on the same template that underpinned the E20 programme. "It has to be affordable for the customer, that is number one. And it has to be viable for the producer. And it has to be viable for me (the fuel retailer). And it should address energy security. And these are the four basic premises on which our E20 programme has launched," Sahney said, adding that E85 would have to fit the same values.
He said the fuel would be rolled out in clusters in step with vehicle makers, rather than spread thinly across the country. "To start with, we will take the National Capital Region as one hub, and then we will take Mumbai, Pune, Nagpur. And there we want to provide E85, which will be available at select locations," he said. The OEMs, he added, "have agreed that they will also be pushing their flex fuel cars initially in these locations."
On pricing, Sahney said the Rs 20 per litre discount on E85 to petrol was an introductory offer that would be reviewed as volumes grew. "Although it is a launch offer, it may be calibrated further as the consumption increases," he said.
Follow Energy Watch on LinkedIN
He said affordability for the consumer had to be balanced against the economics for oil companies, and described energy security as the overriding driver of the shift to higher ethanol blends. "That is the prime motivator, the prime mover for India to furiously adopt the higher [blends] of ethanol," Sahney said.