In Bid to Bring Down Fuel Costs, Cabinet Hikes Ethanol Price by 25% to Incentivise Blending

New Delhi: At a time when petrol and diesel prices in India have breached record levels, the Union Cabinet on Wednesday hiked the market price of ethanol by 25 per cent in a bid to incentivise its production by sugar mills. Ethanol has long been approved as an alternate fuel that can be blended with petrol to bring down its cost along with reducing carbon emissions.

One of the primary reasons for the rising fuel prices is the fact that India imports more than 80 per cent of its oil needs. With the rupee depreciating and crude prices going up, India’s import bill has been on the rise as well. Now, with domestic ethanol production taking shape, India will need lesser imported oil. The move is likely to attract many companies to divert sugar business to ethanol, which, in the long run, will bring down fuel costs.

The country’s target for ethanol-blended petrol has mostly been missed on account of inadequate ethanol production. The Centre has set a target of 10 per cent ethanol blending in petrol by 2022. However, blending was 3.5 per cent in the 2016-17 sugar season and 4 per cent in the 2015-16 season.

Data compiled by the Indian Sugar Manufacturers Association (ISMA) show that there is a requirement of 31.36 lakh kilolitres of ethanol in the 21 states where the Ethanol Blending Programme (EBP) is being implemented. But there has been a supply commitment of only 17.63 lakh kilolitres of the biofuel for the December 2017 to November 2018 period.

Meanwhile, petrol and diesel prices kept hitting fresh highs over the last week. Petrol price in Delhi climbed to Rs 80.87 per litre, while in Mumbai it inched up to Rs 88.26. A litre of diesel in the national capital was priced at Rs 72.97 and Rs 77.47 in Mumbai.

Delhi has the cheapest fuel among all metros and most state capitals because of lower taxes. Mumbai has the highest sales tax or VAT. Petrol costs Rs 84.07 per litre in Chennai and Rs 83.75 in Kolkata. Diesel is priced at Rs 77.15 per litre in Chennai and Rs 75.82 in Kolkata.

However, immediately after the Cabinet announcement, sugar stocks surged. Stocks, including Shree Renuka Sugars, Empee Sugars, Gayatri Sugars, Triveni Engineering and Praj Industries, gained 3-5 per cent. Among other developments, the Cabinet also approved a new procurement policy to ensure Minimum Support Price to farmers.