The Central government has asked all sugar mills and distilleries to not use sugarcane juice or sugar syrup for ethanol production in ethanol supply year (ESY) 2023-24 with immediate effect, the Consumer Affairs Ministry said in an order on Thursday.
The supply of ethanol from existing offers received by OMCs from B-Heavy molasses will continue, the order read.
However, the move sparks doubts if there will be enough stock of ethanol to blend with fuel under a government initiative that aims to chop crude imports.
News reports citing government sources earlier in the day suggested that the government was planning to discourage the diversion of sugar for ethanol production as part of the effort to ensure sufficient supplies of the sweetener in the local market.
Sources said that this matter was discussed in a meeting of the Group of Ministers held on Monday evening, which was attended by Minister of Commerce and Industry Piyush Goyal, Minister of Agriculture Narendra Singh Tomar and Home Minister Amit Shah.
Shares of prominent players took a hit on Dalal Street on Thursday, with stocks of Shree Renuka Sugar, EID Parry, Balrampur Chini Mills and Bajaj Hindusthan Sugar closing down 4.16 per cent, 6.61 per cent, 6.74 per cent and 5.45 per cent each.
“The ministers were concerned about the expected fall in the sugar production in Maharashtra and Karnataka as it could make sugar more expensive just before the general elections. There should be enough sugar available in the country before the election code of conduct comes into effect. One of the senior ministers asked the cabinet secretary to write to the Oil Marketing Companies to stop buying ethanol made from sugarcane juice and from B-heavy molasses,” said the source mentioned earlier.
After India adopted the Biofuel Policy in 2018, the industry has invested heavily in setting up ethanol manufacturing capacities. “We have huge loans to service. This decision of the government will cause a huge fiscal loss to the industry,” said a industry veteran from Maharashtra.
The Indian authorities are expecting the output of sugar to fall owing to below-normal rainfall in key growing states. The Indian Sugar Mills Association, a producers’ body, last month said sugar production is likely to fall 8 per cent to 33.7 million metric tons in the 2023/24 marketing year.
Lowering this diversion towards ethanol may help boost the output of the sweetener.
Fuel retailers in India obtain ethanol from sugar mills in order to blend it with gasoline. They were paying a higher price for ethanol produced from sugarcane juice and B-heavy molasses.