India’s CNG vehicle market is on an accelerated growth path, with sales projected to touch 1.1 million units in FY 25. This surge is being propelled by the government’s commitment to promoting cleaner fuels, a rapidly expanding network of CNG filling stations, and a broader range of CNG vehicle models catering to diverse consumer needs. With these factors in play, India’s total CNG vehicle count is expected to hit 7.5 million by the end of FY25. This marks a substantial rise from 2.6 million in FY16, reflecting an impressive compound annual growth rate (CAGR) of 12 per cent. 

Key Drivers Fueling CNG Growth

Expanding Infrastructure

A major catalyst for CNG adoption is the expansion of refuelling infrastructure. The number of CNG stations has grown from just 1,081 in FY16 to a projected 7,400 by FY25. This expansion significantly reduces refuelling congestion, making CNG vehicles more convenient for consumers.

Increased Availability of CNG Vehicle Models

The Indian auto market now offers over 30 CNG car models, a stark increase from just a handful a few years ago. This wider selection allows consumers to choose from multiple brands and vehicle types, enhancing accessibility and boosting adoption rates.

Cost Savings in Commercial Fleets

CNG penetration in commercial fleets has steadily risen to 10-11 per cent. Lower operating costs make CNG a highly attractive option for fleet operators, further driving demand. The affordability factor remains a crucial advantage over petrol and diesel alternatives.

Emerging Adoption in Two- and Three-Wheelers

The introduction of CNG-powered two-wheelers is gaining momentum, offering an alternative to conventional fuel options. Meanwhile, three-wheelers continue to witness strong CNG adoption, with penetration rates at 28-29 per cent. However, this segment faces increasing competition from electric vehicles (EVs), which are gradually gaining market share.

Challenges Hindering CNG Growth

Despite robust demand, certain challenges could impede the long-term growth of CNG adoption in India. A recent Crisil report highlights key concerns that may affect the market.

Rising Gas Sourcing Costs

One of the primary challenges is the increase in gas procurement costs. The reduction in the Administered Pricing Mechanism (APM) gas allocation for CNG has significantly impacted pricing. In October 2024, APM allocation stood at 68 per cent, but it dropped to 37 per cent by November before a partial revision to 50 per cent in January 2025. This has led to price increases of ₹2-4 per kg, making CNG slightly less competitive.

Limited Price Adjustments by CGD Companies

City Gas Distribution (CGD) companies have maintained minimal price hikes of ₹1-3 per kg to remain competitive. However, these controlled price adjustments are affecting their profit margins, creating financial strain on suppliers.

Competition from EVs and Hybrid Vehicles

The growing popularity of electric and hybrid vehicles is another significant challenge for the CNG market. As the EV ecosystem strengthens with government subsidies, improved battery technology, and expanding charging infrastructure, consumers may shift towards electric alternatives, potentially slowing down the growth of CNG adoption.