Union Cabinet approves modified scheme to enhance ethanol distillation capacity in the country for producing 1st Generation (1G) ethanol from feed stocks

New Delhi: There has been surplus production of sugar in the country since sugar season 2010-11 (except reduction due to drought in sugar season 2016-17); & sugar production is likely to remain surplus in the country in coming years due to introduction of improved varieties of sugarcane. In normal sugar season (October- September) about 320 Lakh Metric Tonnes (LMT) of sugar is produced whereas, our domestic consumption is about 260 LMT. This surplus sugar of 60 LMT in normal sugar season put pressure on domestic ex-mill prices of sugar. The excess stocks of 60 LMT which remain unsold also block funds of sugar mills to the tune of about Rs. 19,000 crore thereby affecting liquidity positions of sugar mills resulting in accumulation of cane price arrears of farmers. To deal with surplus stocks of sugar, sugar mills have been exporting sugar, for which Government has been extending financial assistance. Moreover, India being a developing country can export sugar by extending financial assistance only up to year 2023 as per WTO arrangements.
So, diversion of excess sugarcane & sugar to ethanol is a correct way forward to deal with surplus stocks. Diversion of excess sugar would help in stabilizing the domestic ex-mill sugar prices and will also help sugar mills to get relieved from storage problems. It will improve their cash flows and facilitate them in clearance of cane price dues of farmers; and will facilitate mills to function in the coming years.
Government has fixed target of 10% blending of fuel grade ethanol with petrol by 2022 and 20% blending by 2030. With a view to support sugar sector and in the interest of sugarcane farmers, the Government has also allowed production of ethanol from B-Heavy Molasses, sugarcane juice, sugar syrup and sugar; and has been fixing the remunerative ex-mill price of ethanol derived from C-heavy molasses, B-heavy molasses and ethanol derived from sugarcane juice/ sugar/ sugar syrup for ethanol season. For ethanol supply year 2020-21 Government has now increased the ex-mill price of ethanol derived from various feed stocks.
To increase production of fuel grade ethanol, Govt. is also encouraging distilleries to produce ethanol from maize; & rice available with FCI. Government has fixed remunerative price of ethanol from maize & rice.
Government is also planning to pre-pone achievement of 20% blending target. However, the existing ethanol distillation capacity in the country is not sufficient to divert surplus stocks of sugar & to produce ethanol to supply to Oil Marketing Companies (OMCs) for blending with petrol as per the blending targets fixed by Government of India.
Further the blending targets cannot be achieved only by diverting sugarcane / sugar to ethanol; & 1st Generation (1G) ethanol is required to be produced from other feed stocks like grains, sugar beet etc for which the present distillation capacity is also not sufficient. Therefore, it is an imperative need to enhance ethanol distillation capacity in the country for producing 1st Generation (1G) ethanol from feed stocks such as cereals (rice, wheat, barley, corn & sorghum), sugarcane, sugar beet etc.
Hence,The Cabinet Committee on Economic Affairs chaired by Prime Minister Shri Narendra Modi has approved the following:

To bring a modified scheme for extending interest subvention to augment ethanol production capacity for following categories:
Setting up grain based distilleries / expansion of existing grain based distilleries to produce ethanol. However, benefits of interest subvention scheme to be extended to only those stand alone distilleries which are using dry milling process.
Setting up new molasses based distilleries / expansion of existing distilleries (whether attached to sugar mills or standalone distilleries) to produce ethanol and for installing any method approved by Central Pollution Control Board for achieving Zero Liquid Discharge (ZLD).
To set up new dual feed distilleries or to expand existing capacities of dual feed distilleries.
To convert existing molasses based distilleries (whether attached to sugar mills or standalone distilleries) to dual feed (molasses and grain/ or any other feed stock producing 1G Ethanol); and also to convert grain based distilleries to dual feed.
To set up new distilleries / expansion of existing distilleries to produce ethanol from other feed stocks producing 1G ethanol such as sugar beet, sweet sorghum, cereals etc.
To install Molecular Sieve Dehydration (MSDH) column to convert rectified spirit to ethanol in the existing distilleries.
ii) Government would bear interest subvention for five years including one year moratorium against the loan availed by project proponents from banks @ 6% per annum or 50% of the rate of interest charged by banks whichever is lower.

iii) Interest subvention would be available to only those distilleries which will supply at least 75% of ethanol produced from the added distillation capacity to OMCs for blending with petrol.

Proposed intervention would enhance production of 1G ethanol from various feed stocks thereby, facilitate in achieving blending targets of ethanol with petrol and would promote ethanol as a fuel which is indigenous, non-polluting and virtually inexhaustible and would improve the environment and the eco-system and result in savings on Oil Import Bill. It will also ensure timely payment of dues to farmers.

To achieve 20 % blending by 2030 & to meet the requirement of chemical & other sector, about 1400 cr ltrs of alcohol / ethanol would be required; out of which 1000 cr ltrs would be require to achieve 20% blending & 400 cr ltrs would be the requirement of chemical & other sector. Out of total requirement of 1400 cr ltrs, 700 cr ltrs is required to be supplied by sugar industry & another 700 cr ltrs need to be supplied by grain based distilleries. To produce 700 cr ltrs of ethanol by sugar industry, about 60 Lakh Metric Tonne (LMT) of surplus sugar would be diverted to ethanol which would solve the problem of excess sugar, relieve sugar industry from the problem of storage of surplus sugar, & improve the revenue realization of sugar mills which will facilitate them in making timely payment of cane dues of sugarcane farmers. About 5 crore sugarcane farmers & their families & 5 lakh workers associated with sugar mills & other ancillary activities would be benefitted with this intervention.

To produce 700 cr ltrs of ethanol / alcohol from food grains, about 175 LMT of food grains would be utilized; this extra consumption of surplus food grains would ultimately benefit the farmers as they will get better price for their produce and assured buyers; and thus will also increase the income of crores of farmers across the country.

Sugarcane and ethanol is produced mainly in three states viz Uttar Pradesh, Maharashtra and Karnataka. Transporting ethanol to far flung States from these three states involves huge transportation cost. By bringing new grain based distilleries in the entire country would result in distributed production of ethanol and would save a lot of transportation cost and thus prevent delays in meeting the blending target & would benefit the farmers across the country.

Achievement of Government in past six years in increasing distillation capacity & blending levels

The Government has fixed a target of 10% blending of ethanol into motor fuel by 2022 and 20% by 2030. Till year 2014, ethanol distillation capacity of molasses based distilleries was less than 200 cr litres. However, in past 6 years the capacity of molasses based distilleries have been doubled and are currently at 426 cr litres. With a view to achieve blending targets, Govt. is making concerted efforts to further double the ethanol distillation capacities in the country by 2024.
In ethanol supply year (ESY) 2013-14, supply of ethanol to OMCs was less than 40 crore litres with blending levels of only 1.53 %. However, due to concerted efforts of Central Government, production of fuel grade ethanol and its supply to OMCs has increased by 4 times in past 6 years. In ESY 2018-19, we touched a historically high figure of about 189 cr litres thereby achieving 5% blending. However, due to drought in some regions of Maharashtra and Karnataka, production of sugar and consequently molasses was lower in sugar season 2019-20 and therefore, only about 172.50 cr ltrs of ethanol were supplied by distilleries to OMCs in ESY 2019-20 to achieve 5% blending. It is expected that in current ethanol supply year 2020-21, about 325 cr ltrs ethanol is likely to be supplied to OMCs to achieve 8.5 % blending levels. It is likely that we will be achieving 10% blending target by 2022.
With increase in blending levels, dependence on imported fossil fuel will decrease and will also reduce the air pollution. Also due to upcoming investment in capacity addition/new distilleries, various new employment opportunities will also be created in rural areas; thereby, realising the goal of Atmanirbhar Bharat.