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Future of Indian Automobile Industry as per Nitin Gadkari – India’s Ethanol Blending Programme

Future of Indian Automobile Industry as per Nitin Gadkari – India’s Ethanol Blending Programme

Relevance

  • GS 3 || Economy || Infrastructure || Power & Energy

Status of India’s automobile  industry 

  • Boosting India’s economic expansion and creating employment opportunities for millions of youth is one of the major challenges India faces. Make in India was a flagship economic initiative that aimed to transform the country into a global manufacturing hub and, in the process, generate jobs especially through the automobile sector. Due to various challenges, the automobile sector is undergoing a slowdown.

Reasons for the poor performance of the automobile sector

  • Economic slowdown: The auto sector slowdown is due to weakening economic growth and a liquidity crunch. Weak economic activity, coupled with escalating global trade tensions, led to this slowdown.
  • Lack of credit: Financial crunch brought by a collapse of some non-banking financial companies that used to account for a significant share of automobile financing. Some banks and NBFCs as a result of bad loans and weak retail sales have decided to enforce stricter restrictions. These restrictions include giving out loans only to people with a high credit rating. This has majorly affected auto dealers and customers.
  • Lack of investment: The subdued demand, recent investments made for transition from BSIV to BSVI, and a lack of clarity on policy for electrification of vehicles, has left the industry unsure of its future and has caused it to stop all future investments. Due to less demand, manufacturers are also having to cut down on production.
  • The Rise Of Ride-share Services: Over the past years, there is a rapid rise of ride-share apps like OLA, Uber in the country. This has thus affected sales. It has made customers hesitant to buy a vehicle as much of their expenses are reduced with regular carpool use.
  • India’s Rushed EV Plan:The Indian government has envisioned a radical push for all vehicles to go fully electric by 2030. Due to this EV roadmap, customers have fears that any vehicle that they purchase could potentially become obsolete in the next decade or so. Thus they are holding on to their current vehicle purchase to avoid an unnecessary purchase if EVs are on the way. This is affecting sales in the automobile industry.
  • Overcrowding:Due to the growth in the automotive industry in the past decade, more customers were able to purchase vehicles of their own. However, this turned out to be a double-edged sword as more vehicle sales has led to an explosion of vehicles on the roads today. This has led to an immense amount of bottlenecks and traffic jams on our outdated roads. With public transport expansion like the metro, customers are hesitating to buy vehicles to escape traffic snarls.
  • Rise in prices: Automakers are also struggling to comply with a host of new environmental and safety policies, which have prompted a hike in vehicle prices, which in turn puts pressure on sales.
    • It has become a need of hour to look for alternative feuls that would suffice our domestic consumption and the government is currently focusing on ethanol blending to lessen its dependency on conventional fuels and commit to the goal of clean and green fuel.
    • The Centre plans to notify a system of imposing a “green tax” on older vehicles in a move to disincentivize the use of polluting vehicles and to curb pollution in the country.

What is ethanol blending? 

  • Ethanol is a biofuel, that is, a fuel produced by processing organic matter. The auto fuels we commonly use are mainly derived from the slow geological process of fossilization, which is why they are also known as fossil fuels.
  • Ethanol in India is obtained primarily from sugarcane via a fermentation process. Ethanol is high in oxygen content, which therefore allows an engine to more thoroughly combust fuel.
  • It can be mixed with fuel in different quantities and can help reduce vehicular emissions. Also, since it is plant-based, it is considered to be a renewable fuel.

Current status of ethanol capacity

  • The current ethanol capacity in India is 4.26 billion litres, derived from molasses-based distilleries, and2.58 billion litres for grain-based production.
  • The total capacity will be expanded to 10.16 billion litres for blending by 2025 and proposes that 7.60 billion litres and 7.40 billion litres will come from molasses and grain, respectively.
  • According to the Ministry of Petroleum and Natural Gas, India, the country has preponed the target of achieving 20% ethanol-blended fuel by five years and is now to complete the target by
  • The country needs 4 billion liters of ethanol for 10% ethanol blend, and for 20% ethanol blend, the country needs 1,000 crore liters of ethanol, which will cost approximately INR 65,000 crores.
  • Chhattisgarh government signed a contract execution (MoU) for the country’s first ethanol plant to be set up in the state under the public-private partnership (PPP) model. 

India- Current Trend 

  • Sugar stocks have turned out to be incredible wealth creators for investors. In the last three months, 14 sugar stocks have given upwards of 100% returns.
  • For example, Renuka Sugar has gone up by 181%, Dalmia Bharat is up 154% Investors are looking at a fundamental shift in the sector, which can change sugar firms from a cyclical commodity business to a source of cleaner fuel.
    • Aim- To reduce the country’s dependence on oil imports and curb harmful emissions from vehicles).

Why is ethanol in demand?

  • There is a race for ethanol production. With petrol consumption rising at 5%, the increase in ethanol usage is expected to go up by 14% (pre-pandemic projections), where the industry wanted to target 4.8 billion litres of ethanol at 15% growth till 2030. Indian sugar companies are busy increasing their ethanol capacities.
  • India is also looking at becoming one of the major ethanol producers in the world and the stock market is embracing it.

Purpose and Importance of blending

  • To provide a green and clean alternative fuel source.
  • To reduce the burden of high fuel imports.
  • To reduce the emission of greenhouse gases.
  • To provide an alternative market for crops.
  • Promote the organised sale of reducing crops.
  • To benefit farmers with income security and high returns.
  • To promote behavioural change in fuel consumption.
  • To raise spending on research and development.
  • Better utilisation of urban solid waste.
  • Possible employment generation.

What steps have been taken to increase the production of ethanol?

  • Ethanol is the only true saviour under the conditions, both for mills and cane growers.
  • The Indian Sugar Mills’ Association (ISMA) has said that to achieve the target of 8-8.5% ethanol blending, it is important to increase the blending level to at least 12% in surplus States and adjoining ones. 
  • The current supply is about 7.56% annually. The current demand is about 346.52 crore litres.
  • Pradhan Mantri Ji-VAN Yojana Under the Pradhan Mantri Ji-VAN Yojana, the central government provides viability Gap Funding(VGF) to Second Generation bioethanol manufacturing projects to increase the availability of ethanol for the EBP programme.
  • The Cabinet Committee on Economic Affairs also permitted the conversion of old sugar into ethanol, which is again expected to help mills cope with the sweetener’s current overproduction and make timely payments to farmers for the cane they supply.
  • Ethanol blending Programme
    • Launched in 2003 on a pilot basis.
    • The aim is to promote the use of alternative and environmentally friendly fuels.
    • Implemented by the Ministry of Oil Marketing Companies (OMCs).
  • National Policy on Biofuels-2018
    • The National Policy on Biofuels-2018 has set a target of 20% blending of ethanol in petrol, and 5% blending of biodiesel in a diesel by 2030.
    • Under the Ethanol Blending Programme (EBP), ethanol blending in petrol is being undertaken by the Oil Marketing Companies (OMCs) in the whole country except island Union Territory (UT) of Andaman & Nicobar and Lakshadweep Islands.
  • E100 pilot project:It has been inaugurated in Pune.
    • TVS Apache two-wheelers are designed to run on E80 or pure ethanol (E100).
  • GOBAR (Galvanizing Organic Bio-Agro Resources) DHAN Scheme, 2018
    • The scheme aims to positively impact village cleanliness and generate wealth and energy from cattle and organic waste. It also aims at creating new rural livelihood opportunities and enhancing income for farmers and other rural people.
  • Repurpose Used Cooking Oil (RUCO)
    • The Food Safety and Standards Authority of India (FSSAI) has launched this initiative that will enable the collection and conversion of used cooking oil to biodiesel.

Cons of Ethanol as a fuel

  • Not a clean fuel
    • Though Ethanol is renewable, biomass regrows periodically – it is not a clean fuel, as it emits carbon dioxide on combustion.
    • However, it reduces pollution compared to regular petrol and diesel, because it does not emit sulphur oxides.
    • Thus, blending ethanol in petrol and diesel will help reach BS-VI fuel norms.
  • Production comes at a huge cost
    • There is a huge incentive to produce ethanol.
    • This has been additionally facilitated by the government mandating a 10% blending of petrol with ethanol.
    • In December 2020, the central govt approved an interest subvention of 4,573 crores for new distilleries producing ethanol, which can be used doping in petrol.

Way forward

  • Promoting the use of biofuels in transportation would help to lower the crude import bill in countries like India.
  • In rural and agricultural production, biofuels can aid in the form of new cash crops.
  • Use of wastelands-Efforts should be made to produce renewable biofuels by ensuring the use of wasteland and municipal waste produced in urban areas.
  • The National Biofuels Policy has set a goal of blending biofuels, both for biodiesel and bio-ethanol, by 20 per cent. In the ethanol blending programme, this will require an integrated approach (EBP).
  • The time is ripe for a coherent and consistent policy and administrative structure for the performance of EBP in the implementation of the programme.
  • Investment in the sector
    • To optimise returns when a sector is likely to go under non-linear profitability growth, the focus should be on  Investment in the top two or three sugar firms, the market leaders, as they will see a sustainable uptick in sales and margins from the increased ethanol capacity.
    • Pick a few of the sector laggards or the smallest players can potentially turn out to be multibaggers.
  • Roadmap for Ethanol Blending
    • The central government has released an expert committee report on the Roadmap for Ethanol Blending in India by 2025.
    • The roadmap proposes a gradual rollout of ethanol-blended fuel to achieve E10 fuel supply by April 2022 and a phased rollout of E20 from April 2023 to April 2025.
      • To introduce vehicles that are compatible the committee recommends roll out of E20 material-compliant and E10 engine-tuned vehicles from April 2023 and production of E20-tuned engine vehicles from April 2025.

Mains model question

  • What is the ethanol blending programme? There should be more focus on ethanol production. Discuss

References