India’s CNG Vehicle Sales to Reach 1.1 Million in FY25 Amid Clean Fuel Push

India’s domestic sales of compressed natural gas (CNG) vehicles are projected to reach 1.1 million units by the end of the current fiscal year, driven by the government’s push for cleaner fuel alternatives. This was revealed in a report by Crisil Intelligence on CNG titled, 'SectorVector: Reading the Topical Trends'.

This growth will take the total CNG vehicle population in the country to 7.5 million, a threefold increase from 2.6 million in FY16, with a compound annual growth rate (CAGR) of approximately 12 percent. The rapid expansion of CNG infrastructure has played a crucial role in this surge, with the number of CNG filling stations set to surpass 7,400, up from just 1,081 in FY16, recording a strong CAGR of around 24 percent. The growing network has significantly improved accessibility and convenience for vehicle owners, further boosting demand.

The increased availability of CNG vehicles, now offering more than 30 variants compared to single-digit options a few years ago, has contributed to the rising adoption rate. As a result, the share of CNG-powered passenger vehicles in India’s total passenger vehicle fleet is expected to reach 15-16 percent by FY25, compared to just 5.6 percent in FY16.

The commercial vehicle segment has also witnessed strong momentum, with penetration levels currently at 10-11 percent, as fleet operators increasingly opt for CNG models due to cost savings. The two-wheeler market has started to see rising adoption following the introduction of CNG-powered models. However, the three-wheeler segment, where penetration stands at 28-29 percent, is facing growing competition from electric vehicles (EVs), though industry experts believe CNG will continue to play a vital role in last-mile connectivity.

Commenting on this, Sehul Bhatt, Director- Research, Crisil Intelligence, noted, "Recent allocation cuts could have led to a rise in CNG prices of up to INR 4-6 per kg, most CGD entities have implemented limited price hikes (INR 1-3 per kg) since October 2024, with a view to preserving competitiveness, thereby potentially impacting their margins."

With the rapid expansion of CNG vehicle adoption, natural gas consumption in the segment has grown at a CAGR of around 13 percent between FY16 and FY25. The dominance of the top five states in total CNG consumption has declined from over 90 percent in FY16 to 55 percent in FY25, reflecting the wider expansion of CNG infrastructure across newly awarded geographical areas. However, policy changes have introduced new challenges.

The government recently reduced the Administered Pricing Mechanism (APM) gas allocation for CNG and piped natural gas (PNG) from 68 percent in October 2024 to 51 percent, further cutting it to 37 percent in November before revising it back to 50 percent in January 2025. These reductions have led to an increase in gas sourcing costs for city gas distributors (CGDs) by INR 2-4 per kg, prompting some distributors to raise CNG prices by Rs 1-3 per kg. While CNG prices have remained relatively stable, further reductions in APM gas allocation could lead to additional price hikes, potentially affecting demand.

Despite these challenges, the expansion of CNG infrastructure is expected to continue, particularly in cities like Chennai and various Tier-II urban centers. The congestion at filling stations has also eased significantly, with the number of vehicles per station dropping by nearly 50% since FY16, improving overall customer experience and station efficiency. According to industry experts, CNG remains cost-competitive against petrol and diesel, a key factor driving its continued adoption. However, rising costs could impact long-term infrastructure growth. Potential policy interventions, such as including natural gas under the Goods and Services Tax (GST), reducing excise duty on CNG, and offering tax incentives for CNG vehicles, could help maintain its affordability and competitiveness.

While the CNG market has witnessed significant growth, challenges such as reduced APM gas allocation and increasing competition from alternative fuels, including EVs, could influence its future trajectory.

However, factors such as rapid urbanization, an expanding refueling infrastructure, and government support for clean fuel initiatives are expected to sustain the momentum of CNG vehicle adoption. As the sector evolves, stakeholders will need to navigate regulatory uncertainties while continuing to invest in infrastructure and ensuring CNG retains its cost advantage over conventional fuels.