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How cars fuelled by ethanol can add to India’s food inflation

How cars fuelled by ethanol can add to India’s food inflation

How cars fuelled by ethanol can add to India’s food inflation
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By CNBCTV18.com Aug 6, 2021 10:03:48 PM IST (Updated)

India is pushing for more cars to run on ethanol made from sugar, a move that risks raising the cost of the sweetener globally, a report said.

India is pushing for more cars to run on ethanol made from sugar, a move that risks raising the cost of the sweetener globally, reported Bloomberg.

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The ethanol to be produced will be refined from sugar, one of India’s largest agricultural produce. The government is looking to divert nearly 6 million tons of sugar annually by 2025, said the Ministry of Consumer Affairs, Food and Public Distribution, the report added.
The amount is equivalent to the entire export amount of sugar from India.
The shift to 20 percent blended fuel was earlier supposed to happen by 2030, but Prime Minister Narendra Modi shifted the timeline up by 5 years. The policy decision is expected to have multiple benefits — reduced emissions, less air pollution, usage of domestic sugar, reduced oil import expenditure. 
However, the move could also trigger a potential bull market in sugar prices. India is the world’s second-largest sugar exporter after Brazil. While the shift to ethanol production is not expected to directly affect sugar prices globally, an increase in demand for sugar globally would mean that prices could rise exponentially or countries would cultivate a larger area for sugar cane, the Bloomberg report noted.
Prices have soared to the highest since 2017 amid a supply crunch, partly due to wild weather in Brazil. A further surge will add to food inflation risks, with global food costs already near a decade high.
To meet the ambitious target, India will be nearly tripling its ethanol refinement output to 10 billion litres a year, Secretary, Ministry of Petroleum and Natural Gas, Tarun Kapoor. The endeavour is expected to cost somewhere around the ballpark of $7 billion. However, the main challenge would be to set up the required facilities at the scale needed in just 3-4 years.
The government is already providing financial aid to sugar mills, in order to facilitate the move to ethanol production. COVID-19 also played a part in the transformation. Numerous sugar mills accelerated their ethanol production facilities in order to produce oxygen instead. 
Brazil, the largest producer and exporter of sugarcane, had employed a similar strategy nearly 40 years ago. The move has helped stabilise Brazil’s sugar prices and reduced dependency on oil imports.  
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