New Delhi February 2 2022: India will impose an additional excise duty of Rupees 2/liter (2.67 cents) on unblended fuels from Oct. 1, Finance Minister Nirmala Sitharaman said Feb. 1, underlining Asia's third-largest economy's commitment to promoting biofuels aimed at reducing crude imports.
India, the world's third-biggest crude importer and consumer, has set a target to cut imports by 10% to 67% by 2025 through a multi-prone strategy of raising domestic crude production and focusing on renewables and ethanol blending program by 2025.
"We want to encourage fuel blending programme," Sitharaman said while presenting the federal budget for 2022-23.
She said the move to charge additional production tax was aimed at pushing oil companies to go for a fuel blending program.
In 2021, India reduced the goods and services tax, or GST, rate to 5% from 18% on ethanol meant for blending with gasoline, in an attempt to cut excessive dependence on imported crude oil.
Currently, India relies around 85% on overseas purchases to meet domestic oil demand.
India has norms in place for 12% ethanol blending (E12) and 15% ethanol blending (E15) with gasoline.
These norms will be rolled over in the next couple of years, from the 10% blending expected in 2022 to 20% blending by 2025.
Currently, India has an installed capacity of 6 billion liters for ethanol output.
India will need to produce at least 10 billion liters of ethanol for a 20% blending program by 2025 with a projected installed capacity of 12 billion liters, according to a study by the Indian Sugar Mills Association.
The country is carrying out research in ethanol blending with diesel, as part of its efforts to develop alternative fuels to cut dependence on crude imports and reduce CO2 emissions.
India has been promoting the usage of biofuel under the National Policy on Biofuels of 2018.
The encouraging initiatives on the supply side of ethanol have prompted the Indian government to advance the target of 20% ethanol blending in gasoline by five years to 2025.
Tax on chemicals
Sitharaman cut production tax on certain critical chemicals, namely methanol, acetic acid and heavy feedstocks for petroleum refining.
The minister announced raising the production tax for sodium cyanide as adequate capacity exists in the domestic market.