As India intensifies its efforts to transition towards cleaner mobility, policymakers are being encouraged to reconsider their approach - not by prioritising one technology over another, but by redefining the metrics used to measure success.

Vikram Gulati, Country Head and Executive Vice President for Corporate Affairs and Governance at Toyota Kirloskar Motor, has asserted that a carbon-linked Goods and Services Tax (GST) framework is essential to ensure that this transition is sustainable, scalable, and aligned with real-world outcomes.

Speaking at the Future Powertrain Conclave organised by a local automotive publication, co-hosted by Guidance Tamil Nadu, Gulati presented a globally benchmarked, performance-based policy vision in which vehicle taxation is directly linked to fuel efficiency and carbon emissions, irrespective of the powertrain type.

"This challenge is resolved by ensuring that the most critical policies - primarily taxation - are based on merit," he stated. "Not on whether a car is electric, but on whether it contributes to the reduction of fossil fuel consumption and emissions."

Focus on outcomes, not technology labels

Gulati's central proposition is that India's automotive policy should incentivise environmentally beneficial outcomes rather than mandate specific technologies. With various original equipment manufacturers (OEMs) exploring different clean mobility solutions - including electric vehicles (EVs), hybrids, and biofuels - he contends that the Government should foster a level playing field where environmental performance, rather than technology type, is the key determinant.

"It is not a matter of EVs versus other powertrains," he explained. "The fundamental question is: How can consumers be empowered to make more informed and environmentally responsible choices?"

Europe and Thailand offer valuable models

Citing international examples, Gulati observed that countries such as Thailand and 22 of the 29 EU member states already tax vehicles based on fuel consumption or carbon dioxide emissions. These systems are straightforward, transparent, and do not require ongoing government subsidies to support the adoption of cleaner technologies.

"If an individual chooses to purchase a vehicle with poor fuel efficiency, they should pay more in taxes," he stated. "It is a simple and transparent mechanism that removes the need for continued taxpayer-funded subsidies."

Brazil's comprehensive approach: taxing the entire energy chain

Gulati expressed particular admiration for Brazil's progressive policy shift, which goes beyond most countries by taxing vehicles based on well-to-wheel emissions. Rather than assessing only tank-to-wheel efficiency (i.e., vehicle performance), Brazil intends to measure the full lifecycle carbon intensity of all fuels - electricity, biofuels, petrol, and others.

"They are calculating the carbon intensity of each energy source - electricity, ethanol, diesel, gas - and planning to base taxation on the actual environmental impact," he noted. "This is a transparent way to address pollution and provide consumers with genuine choices."

India's inconsistent taxation framework

In contrast, India's current vehicle taxation system remains misaligned with environmental performance goals. Gulati criticised the inconsistencies in the existing GST structure, where less efficient vehicles may be taxed more favourably than efficient ones simply due to classification by size or segment.

"To illustrate: if one purchases a small car that is less efficient than a larger one, it is possible to pay less in tax. That is the prevailing situation," he said.

He elaborated with a relatable comparison: "When purchasing a 5-star-rated air conditioner, it typically costs Rs. 7,000 (US$ 80) more - part of which is tax. The same principle should apply to cars. At present, the tax system inadvertently penalises efficiency."

Aligning policy with national objectives

The recommended course of action is to align India's national objectives - net-zero emissions by 2070 and energy security by 2047 - with market-facing instruments such as taxation.

India is at a pivotal juncture. By 2030, the country is expected to sell approximately six million new cars annually, of which only 1.2 million are projected to be electric vehicles (assuming a 20% EV penetration rate). This leaves an estimated 4.8 million vehicles to be either hybrids or powered by internal combustion engines (ICEs), according to Gulati.

Even under optimistic projections, the ICE vehicle population is expected to comprise between 87% and 92% of the market by 2030. This would necessitate the import of an additional 1.2 million barrels of crude oil per day, contributing 30% of the anticipated global growth in fossil fuel demand.

"While there is frequent discourse around reducing carbon emissions, lowering fossil fuel dependence, and enhancing energy efficiency, such goals will remain aspirational unless reflected clearly and consistently in national policy," he cautioned.

Gulati emphasised that implementing a carbon-based GST framework would allow market forces to reward efficient technologies. Electric vehicles would still benefit under such a structure, but without reliance on indefinite public subsidies.

No threat to EV adoption from a technology-neutral approach

Addressing concerns that a multi-technology strategy could dilute the push for EVs, Gulati contended that the development of the broader electrified ecosystem would, in fact, support EV growth.

"Technologies such as hybrids, plug-in hybrids, and range extenders may employ smaller batteries and motors, but they still generate demand for EV components. This demand helps scale up the EV supply chain," he said.

Pursuing a multi-pathway strategy

Toyota has adopted a multi-fuel strategy tailored to India's diverse energy landscape, aiming to offer a broad spectrum of sustainable mobility solutions.

Rather than depending solely on battery electric vehicles (BEVs), the company is investing in a diversified product portfolio, including:

- Hybrid electric vehicles (HEVs)
- Plug-in hybrid electric vehicles (PHEVs)
- Fuel cell electric vehicles (FCEVs)
- Flex-fuel vehicles (capable of operating on ethanol)

A significant milestone in this journey was the 2023 unveiling of the Innova HyCross flex-fuel hybrid - the world's first BS6 Phase-II-compliant strong hybrid vehicle powered entirely by ethanol. This strategy aligns with India's carbon neutrality targets and provides scalable, infrastructure-aligned options for clean mobility.

A strategic alliance with Suzuki

Suzuki Motor Corporation is collaborating with Toyota in this initiative. Notably, Suzuki is developing a battery electric SUV for Toyota, with production scheduled to commence in the second quarter of 2025 at Suzuki Motor Gujarat.

This partnership leverages Suzuki's expertise in compact vehicle engineering and Toyota's strengths in electrification to deliver affordable, practical, and environmentally sustainable vehicles for Indian consumers.