What the new government can do is to make ethanol blended fuel to be mandatorily used by all state transport vehicles in all the states in India

Six months ago, during the 79th AGM of the Indian Sugar Mills Association (ISMA), Chairman Srinivasan pleaded to the UPA Government to increase the import duty of sugar from 15% to 40%. At the same time, he suggested that the government should also procure at least 20 lakh tonnes of sugar to create a strategic reserve to stabilise the market price through PDS - public distribution system.

At that point of time, sugar mills had also faced serious problems relating to the pending payments (arrears) to farmers for the sugar cane procured from them. Though soft credits were made available, as on 5^th June, sugar mills in UP, for instance, have paid only Rs10,939.84 crore out of the total of Rs19,390.57 crore worth of cane obtained from farmers, based on the State Advised Price of Rs280 per quintal, for the 2013-14 season. Thus the outstanding arrears amounted to over Rs8,450 crore.

Anyway, soon after becoming the Food Minister, Ram Vilas Paswan has had serious meetings on the sugar industry's woes with all concerned. It appears the meeting was attended by others like Radha Mohan Singh (Agriculture Minister) and Nitin Gadkari (Transport), among others who evinced keen interest to create conditions that would facilitate settlement of dues to farmers and also induce sugar mills to increase production of ethanol.

It may be recalled that the export incentive of Rs3,300 per tonne was fixed by the previous government which was later reduced to Rs2,277 for shipments during April-May. The current sugar season ends in September and the erstwhile food minister, KV Thomas had decided to do away with this incentive, which was designed to cover the cost of marketing and promotion by mills.

After these deliberations, it seems the new government has decided to revert back to Rs3,300 (as against Rs2,277 fixed for April-May shipments) and continue this till 40 lakh tonnes are shipped between February 2014 and September 2015.

The second major step is likely to be the increase in import duty on sugar from 15% to 40% to curb cheap imports. This would give enable the mills to reduce their stocks and make way for the new ones to come in.

Also, during the meeting a proposal has been made, it appears "to extend loans given equivalent to the excise duty paid by millls in the past 3 years to 5 years".Such a move may also give some relief to the industry.

In a separate move, government has revised the formula for fixing the benchmark price for ethanol to make it more attractive for the mills and to drive benefit from this additional revenue. It is reported in the press that an inter ministerial group, of officials from various ministries, principally from Petroleum, have worked out a formula based on average of the refinery transfer price (RTP) or cost of petrol to the OMC (Oil Marketing Companies) for the previous financial year instead of lowest RTP.

It may be recalled that government had made it mandatory for a 5% blending ethanol which they plan to push it upto 10% OMCs have so far finalised offers for 65 crore litres of ethanol for the current season and 35 crore litres have been already lifted.

Karnataka's public transport system (BMTC) has been championing the cause of use ethanol blended fuel for their use successfully.

What the new government can do is to make ethanol blended fuel to be mandatorily used by ALL State transport vehicles in all the States in India. This would make a big difference and OMCs should be encouraged to put pumping stations in all the State Transport Depots where 10% blended fuel be made available.
 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)