Last year, the government had also allowed the mixing of ethanol extracted from surplus grains.
Highlights
- Diesel in most parts of the country may cost Rs 2 per litre more from October 1.
- Petrol in a few places such as North East may see a price hike, said FM Nirmala Sitharaman in Budget
- Revenue Secretary Tarun Bajaj said the blended fuel has been discussed with the petroleum ministry.
Diesel in most parts of the country may cost Rs 2 per litre more from October 1 while petrol in a few places such as North East may see a price hike after Finance Minister Nirmala Sitharaman levied additional excise duty on fuel sold without blending it with ethanol or biodiesel.
Presently, 10 per cent ethanol, extracted from sugarcane or surplus foodgrain, is blended or mixed in petrol (meaning 10 per cent of ethanol mixed with 90 per cent of petrol) with a view to cutting oil import dependence and provide farmers with an additional source of income.
Ethanol-blended petrol is supplied in 75-80 per cent of the country as availability of ethanol and logistics hamper supply in remaining areas. On the other hand, there is only an experimental blending of biodiesel, extracted from non-edible oilseeds, in diesel - the most used fuel in the country.
"Blending of fuel is a priority of this Government. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of Rs 2 per litre from the 1st day of October 2022," Sitharaman said in her Budget speech in the Lok Sabha.
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While the additional duty will push oil companies to procure more ethanol for mixing in petrol and arrange for logistics for transporting to deficient areas, it is unlikely that the country will be able to build infrastructure to manufacture biodiesel to the scale needed for blending in diesel in next 8 months, industry officials said.
At a post-Budget press conference, Revenue Secretary Tarun Bajaj said the blended fuel has been discussed with the petroleum ministry.
"We have also collected data on what is not being blended and this is something to push the petroleum companies to ensure that they do the blending. Our desire is not to collect the tax because it would be very minimal. The desire is the blending happens and to an extent, it benefits the country," he said.
The budget proposal would mean that areas that do not have a supply of blended fuel will see higher rates than the areas where the blended fuel is sold. Presently, parts of North East and Jammu & Kashmir and some far-flung areas in the South as well as in Rajasthan do not have a supply of ethanol-blended petrol.
Industry officials said it was possible to raise the supply of ethanol-blended petrol in Rajasthan and unserviced parts of the South but the supply to North East will be constrained.
Diesel on the other hand is largely sold without any blending in the country.
"In order to promote the blending of Motor Spirit (commonly known as Petrol) with ethanol/methanol and blending of High-Speed Diesel with biodiesel, an additional
basic excise duty of Rs 2 per litre on petrol and diesel, intended to be sold to retail consumers without blending, would be levied with effect from the 1st day of October 2022," the memorandum explaining the provisions of the Finance Bill said.
Last year, the government brought forward the target to achieve 20 per cent ethanol-blending with petrol to 2025, five years ahead of its previous target, to help reduce its dependence on costly oil imports. 10 per cent ethanol blending is to be achieved in 2022.
India is the world's third-biggest oil importer, relying on foreign suppliers to meet more than 85 per cent of its oil demand. Officials said currently the average ethanol blending is 8.5 per cent. A 10 per cent blend would require 4 billion litres of ethanol by 2021-2022 sugar year (November 2021 to October 2022).
To achieve 20 per cent blending by 2025, and to meet the requirement of the chemical and other sectors, about 12 billion litres of alcohol/ethanol would be required. The sugar industry will divert 6 million tonne of surplus sugar to produce 7 billion litres of the ethanol needed while the other 5 billion litres of ethanol will be produced from excess grain.
Last year, the government had also allowed the mixing of ethanol extracted from surplus grains.
Elsewhere in the Budget, a provision of Rs 4,000 crore has been made for subsidy on cooking gas. This may be inadequate in case international prices of crude oil continue to rise and there is resistance from consumers to further price hikes.
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