Squeezed by a nearly 13% decline in monsoon rainfall, India is expected to see ethanol blending rates fall to between 15% and 17% this supply year. The resulting supply constraints have pushed retail food inflation to 7.74% and prompted directives halting the purchase of sugar-based ethanol. Distilleries with roughly 20 billion liters of capacity now face intense financial headwinds, further amplified by a lowered corn-ethanol procurement price of 68.86 rupees per liter.
Key points
National blending rates are projected to slip below the 20% benchmark to prioritize domes…: National blending rates are projected to slip below the 20% benchmark to prioritize domestic food security over fuel.
Lower blending volumes threaten to expand India's exposure to volatile global oil markets…: Lower blending volumes threaten to expand India's exposure to volatile global oil markets after saving 2 trillion rupees since 2014.
Diverting subsidized state rice reserves to ethanol producers remains unfeasible due to t…: Diverting subsidized state rice reserves to ethanol producers remains unfeasible due to the significant fiscal burden it would create.
Sources checked by our analysis pipeline: 1
The proportion of ethanol in Indian petrol is poised to fall below the official 20% target in the supply year that began this month, industry insiders say, reversing gains made after the government achieved the milestone some five years ahead of schedule.
A sustained drop in ethanol use would undermine one of Prime Minister Narendra Modi's signature energy-security programmes and leave India more reliant on overseas crude at a volatile time for energy prices amid persistent geopolitical uncertainty.
The E20 initiative has saved nearly 2 trillion rupees ($21.1 billion) in oil import costs since Modi came to power in 2014, according to government data, with annual savings estimated at 430 billion rupees at the 20% ethanol blending rate.
However, a severe El Nino this year cut India's monsoon rainfall by nearly 13% from normal levels, and concerns about crop shortages sent corn and sugar soaring some 40% to hit record highs, while rice - another ethanol feedstock - climbed 20%. Retail food inflation accelerated to 7.74% in September from 5.97% a month earlier.
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