The industry has also suggested that no levy other than the central sales tax should be imposed on ethanol. This can be possible only if ethanol is included in the list of goods of special importance under chapter IV of the Central Sales Tax Act. Therefore the state governments will not have authority to impose levy. The sugar industry said that one of the major hindrances to the implementation of ethanol doped petrol programme was that the states were imposing levy on ethanol at varying rates.
The Union government had earlier announced mandatory use of 5% ethanol doped petrol as auto-fuel, but it has yet to be implemented fully in some states.
The government has plans to raise the ethanol doping to 10% in the latter half of 2007. In this context, the Indian Sugar Mills Association (Isma) in a representation to the Union petroleum ministry and the Planning Commission said that the sugar industry have produced 565 million litre ethanol in 2007-06, sufficient enough to meet the needs of 5% doping programme. But if doping was to be hiked to 10%, the price structure needs to be reconsidered. Isma estimated that for meeting the needs of 10% mandatory doping of petrol, an additional 5% ethanol has to be produced from B-heavy molasses.
B-heavy molasses are rich in recoverable and an additional 5% ethanol production would amount to a loss of one million tonne in sugar output. This will not be grave given the potentiality of the industry to produce sufficient sugar.
But the oil companies should bear in mind the loss incurred by the industry in not producing 1 million sugar and diverting molasses for ethanol production. Thus on basis of average realisation from sugar sales at Rs 1300 per quintal, the price of ethanol purchase should be increased to Rs 23 a litre.