In big boost for farmers, Narendra Modi led Cabinet clears 5 pct hike in ethanol prices

By: | Published: November 2, 2017 4:18 AM

The government has decided to raise the price of ethanol by around 5% for supplies to oil-marketing companies for blending with petrol.

Narendra Modi, Narendra Modi led Cabinet, boost for farmers, big boost for farmers, hike in ethanol pricesThe government has decided to raise the price of ethanol by around 5% for supplies to oil-marketing companies for blending with petrol. (Image: Reuters)

The government has decided to raise the price of ethanol by around 5% for supplies to oil-marketing companies for blending with petrol. The Cabinet Committee on Economic Affairs on Wednesday approved a proposal to increase the ethanol price to Rs 40.85 per litre for the 2017-18 marketing year (starting December) from Rs 39 this year. The price was arrived at by a panel comprising senior officials with the ministries of petroleum, food and finance, factoring in the cost of production of the bio-fuel. FE had first reported the likely 5% increase in ethanol price for 2017-18 on October 10. For the OMCs, however, the increase in the cost of procurement will be even higher than the 5% rise in ethanol prices, thanks mainly to higher tax incidence following the introduction of the goods and services tax regime from July. While the GST on ethanol was fixed at 18% before its introduction, the excise duty on ethanol was 12.5% and some states like Maharashtra, Karnataka and Andhra Pradesh used to impose upto 8% value-added tax.

However, Uttar Pradesh, which alone accounts for over a half of the country’s ethanol production, didn’t impose any VAT on the bio-fuel. The increase in the ethanol price would improve the ability of the sugar mills, the largest producers of the bio-fuel, to pay farmers on time for cane supplies. Abinash Verma, director-general of the Indian Sugar Mills Association, said the hike would attract more ethanol supplies. “This in turn will improve net realisation of the sugar mills, which will also help the farmers get their remunerative cane price. The next challenge is to convince all the states, which are levying taxes and duties on this green bio-fuel, being completely outside their legislative powers, to withdraw the same immediately,” he said.

Varma said, as provided in the Indian Constitution and the Industries Development and Regulation (IDR) Act, states should also stop insisting on state excise permits for despatch and movement of ethanol to give further fillip to the blending programme. In fact, Karnataka recently scrapped the requirement of permits from the excise department for the movement of ethanol, becoming the first state to implement the amendments to the IDR Act. The latest amendment to the IDR Act removes any sort of confusion to give states power to regulate alcohol meant for human consumption only, while the Centre will have power over industrial alcohol like ethanol, which is not consumed by human beings.

The decision by the Karnataka government seems to endorse this basic principle of the IDR amendment. Sugar mills which produce ethanol may now increasingly cite the Karnataka government’s move to seek the abolition of such practices in other states, especially in largest ethanol producer Uttar Pradesh. Ironically, while Congress-ruled Karnataka has implemented the amendments to the IDR Act to make inter-state ethanol supplies easier, states ruled by the BJP, most notably UP and Maharashtra, are yet to follow suit despite the fact that the ethanol blending programme has been promoted by Prime Minister Narendra Modi.

Following the IDR Act, the Union food ministry had even written to various states, explaining clearly the division of power to regulate both potable and industrial alcohol. The delivered price of ethanol during ethanol supply years 2014-15 and 2015-16 were in the range of Rs 48.50 to Rs 49.50 per litre, which also included taxes and transportation charges borne by suppliers. However, in October last year, the government announced a fixed price of Rs 39 per litre for producers for 2016-17, while directing OMCs to bear taxes and transportation and other expenses. The supplies of ethanol went up from 38 crore litres in 2013-14 to 111 crore litres in 2015-16 before it started faltering again. The government had first proposed the 5% blending of ethanol with petrol in 2003 and made it mandatory in 2007.

In December 2013, the Sharad Pawar panel mooted doubling the blending limit to 10%, which was reiterated by the Cabinet Committee on Economic Affairs in April 2015. In August 2015, Prime Minister Narendra Modi directed ministries concerned to look for ways to make the proposed blending programme a reality soon. According to a report prepared jointly by Dehradun-based University of Petroleum and Energy Studies and Bengaluru-based Centre for Study of Science, Technology and Policy, if the blending programme can be implemented consistently (and actual blending is raised to 20%), the country could potentially save $6.12 billion by 2021-22. In August 2015, a study by McKinsey had said the country could potentially save as much as $1.7 billion a year if the proposed 10% blending programme is strictly implemented.

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