Wrong blend

India’s sugar industry is reeling under a glut, cane dues to farmers are at a high and the country has just committed to reducing its reliance on fossil fuels at the Paris climate talks. All this is ideal for the country’s ethanol-blended fuel programme (EBP) to take off. The processing of excess cane into ethanol can reduce the sugar industry’s surpluses, generate higher incomes for both mills and farmers, and reduce reliance on imported crude to save foreign exchange. But despite a strong case in favour of the EBP, it has been mired in problems from the day it was flagged off a decade ago.

The roadblocks faced by Tamil Nadu’s sugar mills in increasing their supplies to the EBP are symptomatic of what ails this initiative. Faced with surplus cane for the fourth consecutive year, the State’s sugar mills expect to be saddled with nearly 27 crore litres of alcohol, as a by-product of cane crushing, this season. Participating in the tenders floated by the oil firms will allow them to liquidate these stocks and bolster their realisations. But what stands in the way of their ramping up ethanol output is the 50-lakh-litre production cap imposed by the State government for supplies to the EBP. This production cap is clearly driven by the State’s commercial interest in ensuring that its liquor industry never runs dry on potable alcohol supplies; after all, liquor chips in with a third of its tax revenue. Given that Tamil Nadu’s sugar mills churn out alcohol well in excess of the liquor industry’s needs, the State can relax this cap without materially hurting liquor manufacturers. The tug-of-war between the liquor lobby, the State government and other vested interests in the sugar economy is not unique to Tamil Nadu. Other large sugar-producing States in India — Uttar Pradesh and Maharashtra — have equally draconian laws in place, from restrictions on inter-State movement of molasses, to high entry taxes, to the ‘reservation’ of molasses output for first-use by the liquor barons. The Centre should realise that without the States untangling these convoluted rules, it cannot hope to make a success of the EBP.

To be fair, the NDA government has taken many more steps than its predecessors to make a go of this programme. Last year, it resolved the bickering between oil companies and sugar millers on ethanol pricing by fixing it at ₹49 a litre. It streamlined the tendering process, hiked the mandatory blending quota from 5 to 10 per cent, and linked its sugar subsidy package to ethanol supplies. However, for ethanol blending to really take off, both the sugar industry and oil companies will have to stop treating this as an opportunistic business that they will either take up or ignore, depending on the commodity cycle. The Centre, on its part, needs to seriously examine if the Brazilian model of allowing sugar millers to switch freely between sugar and ethanol based on their relative economics can be adopted in India.

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