Petrol at Rs 95-plus per litre pinches the pockets of the user. But it has opened up opportunities for Indian sugar mills – and a way out of the issue of cane payment owed to farmers. Oil marketing companies (OMC) are expected to purchase 283 crore litres of ethanol from mills for blending up to 10% with petrol in 2020-21. (December – November). This is against 167 crores, 179 crores and 150.5 crore litres in the preceding three supply years and just 38 crore litres in 2013-14. In addition, out of 283 crores litres, only 59.7 crores consist of ethanol usually derived from ‘C’ molasses, the remaining cane syrup after most of the sugar has been extracted and crystallised.
The balance of supply is going to be ethanol from fermentation of whole sugar cane juice (42.2 crore litres) and intermediate ‘B-heavy’ stage molasses (181 crore litres). Mills would also be paying more for ethanol derived from ‘B-heavy’ molasses (Rs 57.61/litre) and cane juice (Rs 62.65/litre) than for conventional ‘C’ molasses (Rs 45.69/litre). The cumulative estimated purchases of ethanol by OMCs in 2020-21 would have a value of almost Rs 15,800 crores. It is significant that even the Rs 62.65/litre ex-mill rate for ethanol from cane juice is much below the Rs 91.17/litre retail price of petrol in Delhi.
The disparity is mainly due to taxes: oil is subject to a central excise duty of Rs 32.90 plus, a state tax of Rs 21.04/litre in Delhi. “Ethanol today does not require any subsidies. The government has only to ensure that it is taxed less than petrol,” said the sugar industry’s source. Ethanol, which is used for mixing with petrol and contains 99.5 per cent alcohol, is taxed on just 5 per cent of products and services (GST). This is different from the rectified spirit or drinking-grade extra neutral alcohol, which has 95-96 per cent purity and is subject to a host of state government levies. But the 5% GST on ethanol, which decreased from 18% in July 2018, has a national meaning. This is because the fuels are beyond the GST and the OMCs cannot demand any input tax credit.
Excise and state taxes are also imposed on ethanol-blended fuel, which the OMCs do in their depots and not in refineries. Notwithstanding the lack of any substantial tax benefit, India’s ethanol output capacity doubled from 215 crore litres in 2014-2015 to 426 crore litres in 2019-20. Most of this capacity addition came after May 2018, when the Narendra Modi government launched a new biofuels policy targeting 10% of all-India average ethanol blending in petrol by 2022 (4.2% in 2017-18) and 20% by 2030. From 2018 to 19, the government also started setting higher ex-mill prices for ethanol extracted from ‘B-heavy’ molasses and cane juice than those of ‘C’ molasses feedstock.
