India is working its way to a record 7.5 percent ethanol blending this year, up from last year's high of 4.22 percent. The country's existing ethanol capacity is 355 crore litre, the sugar mills have contracted 250 crore litre for the year, of which 51 crore litre has already been supplied in the initial three months of the season which begins from December.
There are a couple of tenders more and that could take the final number slightly higher from here.
Under the ethanol blending programme, the centre has asked the oil marketing companies to target 10 percent blending of ethanol by 2022. The government intends to raise the number to 20 percent by 2030.
Ethanol blending in India was started in 2001. It is a process of mixing ethanol with petrol, where ethanol is a by-product of sugarcane molasses.
India's average consumption of petrol is approximately 3,500 crore litre and 10 percent of the blending would mean 350 crore litre of ethanol requirement. And that is exactly where the available capacity stands as the industry has been making investments towards this on back of good demand, higher prices fixed by the centre and the interest subsidies and loan schemes cleared by the government for ethanol.
The push for blending petrol with ethanol gains importance every time India faces higher sugar crop, resulting in a domestic surplus, thus lower sugar prices and rise in cane arrears to farmers. But because this is cyclical in nature, a surplus can convert into deficit in a matter of a couple of years and strain the ethanol output.
While India ranks only second to Brazil in the world in sugar production, the country ranks far lower when it comes to ethanol production. The US is the top producer of ethanol, followed by Brazil and Europe, China, Canada etc.
Ethanol blending rate in Brazil is at 45-50 percent. Production of ethanol as an alternative fuel also works for these countries as they have abundant water and low population density, quite contrary to India.
The question that many would want to ask is, if this the right time or the strategy to push for higher ethanol production as the government is working towards ushering in electric vehicles. Is it fair to give subsidy to industry for increasing capacity or should we be preparing for the transition or should the subsidies be increased for the new technology?
First Published: IST