In order to encourage sugar mills to divert production of sugar to the vehicle fuel, the cabinet on Wednesday gave its nod to increase ethanol prices by 25 percent.
"This is an excellent move, it will attract many companies to divert sugar business to ethanol," said Abinash Verma of Indian Sugar Mills Association (ISMA).
"We have been requesting the government to help us in diverting the surplus sugar into ethanol and for the first time the government has come with a beautiful policy giving premium for the ethanol that we produce from the heavy molasses," he added.
Verma said that the oil marketing companies(OMCs) have already floated the tender which crossed ethanol blending by 5 percent.
However, he said that the focus was on crossing ethanol blending by 10 percent in coming years.
Atul Chaturvedi, executive chairman of Shree Renuka Sugars Ltd, said that the move is the way forward and "with the way crude prices are moving, going the ethanol route makes sense".