HSBC Investment Research has cautioned that proposed reductions in the Goods and Services Tax (GST) on internal combustion engine (ICE) vehicles may undermine the competitive edge of India’s expanding electric vehicle (EV) market.
The London-based financial institution flagged that ICE vehicles currently carry a GST rate of 28 percent, while EVs benefit from a lower 5 percent levy. Reducing taxes on traditional petrol and diesel vehicles could significantly narrow the price difference, potentially dissuading consumers from opting for greener alternatives.
HSBC outlined three potential reform scenarios under consideration by the government. In the first, GST on small cars might be reduced from 28 percent to 18 percent, with larger vehicles consolidated into a new 40 percent slab that removes the cess. Analysts estimate that this could lower prices of small cars by approximately 8 percent and larger cars by 3–5 percent.
Under the second, more uniform approach, all vehicle categories could see a flat reduction in GST from 28 percent to 18 percent, while retaining the cess. This move may result in an across-the-board price decrease of 6–8 percent but would also reduce government revenue by an estimated USD 5–6 billion.
The third scenario, deemed least likely, proposes both a flat GST reduction and the elimination of cess altogether. While it would streamline tax administration, this option carries the risk of slashing nearly half of the auto sector’s GST-generated revenue.
HSBC warned that any of these scenarios could erode EVs’ current cost advantage and slow adoption, complicating India’s path toward carbon-neutral goals and clean transportation targets. The financial institution emphasised that reducing ICE vehicle taxes may have short-term fiscal appeal and potential employment benefits, but could impede long-term environmental progress.
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