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Bet on ethanol price to reap twin gains

Union ministers Dharmendra Pradhan (left) and Piyush Goyal in New Delhi on Wednesday. PTI

New Delhi: The government on Wednesday hiked the price of ethanol produced directly from sugarcane by 25 per cent to Rs 59.13 a litre, a move meant to help cane farmers ahead of elections next year as well as try and marginally reduce crude oil imports.

The Centre also eased the rules for procuring grain by states through private firms and promised oilseed farmers that they would be compensated in case prices fell below a floor price, a move which will benefit the farmers of Gujarat, the largest producer of the crop.

The Cabinet Committee on Economic Affairs raised the procurement price of ethanol derived from 100 per cent sugarcane juice to Rs 59.13 per litre from the current rate of Rs 47.13, oil minister Dharmendra Pradhan told a news conference.

The price for ethanol produced from B-heavy molasses (also called as intermediary molasses) was hiked to Rs 52.43 a litre from the current Rs 47.13, but that for ethanol produced from C-heavy molasses was reduced marginally to Rs 43.46 per litre from Rs 43.70. Molasses is a viscous product resulting from refining sugarcane or sugar beets into sugar.

"The higher procurement price of Rs 52.43 per litre for the ethanol made by diverting 'B' heavy molasses away from sugar into ethanol, is one of the best steps taken by the government to achieve the dual objective of encouraging more production of ethanol as well as of reducing some of the surplus sugar," Abinash Verma, director-general of the Indian Sugar Mills Association said.

"This price will compensate for the loss in revenue from the sugar sacrificed. Therefore, sugar mills will be incentivised to divert surplus 'B' heavy molasses, which is in abundance, for ethanol production. The current constraints on capacities to produce more ethanol will also have to be overcome by investing in ethanol projects over the next 2-3 years," Verma said.

The move would help mills to quickly release the arrears of farmers, which stand at over Rs 13,000 crore. As much as 40 per cent of these dues are in Uttar Pradesh. Also,the government is looking at scaling up the blending to 10 per cent in the next couple of years from 4-5 per cent now .

Procurement

The cabinet also approved a new procurement policy under which one scheme will focus on compensating oilseeds farmers if rates fall below MSP (minimum support price) and another will allow states to rope in private players for procurement.

Under the new policy, "Annadata Maulya Samrakshana Yojana", the state governments will be given the option to choose multiple schemes to protect farmers when prices fall below MSP.

The "Price Deficiency Payment (PDP)" scheme has been framed on the lines of Madhya Pradesh government's Bhavantar Bhugtan Yojana (BBY) to protect oilseeds farmers only. Under PDP, the government will pay to farmers the difference between MSP and the monthly average price of oilseeds quoted in the wholesale market. This would be implemented for up to 25 per cent of the oilseeds production in a state.

Besides this, the states are given the option to rope in private players for oilseeds procurement on a pilot basis. Both PDP and the private players' participation will be exclusively for oilseeds because the government wants to bring down the country's import dependence on cooking oils, the officials said.

Under the new policy, the states will also have the option to choose the existing price support scheme (PSS), under which central agencies procure commodities covered under the MSP policy when prices fall below MSP.

The new mechanism is likely to cost the exchequer nearly Rs 40,000 crore and come into effect for the upcoming kharif season.

In the budget this year, the government had announced that it will put in place a fool-proof mechanism to ensure minimum support price (MSP) to farmers. It had asked think-tank Niti Aayog to suggest a mechanism in consultation with the union agriculture ministry and states.

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