10% ethanol blending can save $1.7bn in forex for India:Report

India could save USD 1.7 billion of foreign exchange annually by 10 per cent mandatory ethanol blending with petrol, global consultancy firm McKinsey said today while advocating promotion of the sugarcane bye-product to boost revenues of the cash-starved sugar mills.
Releasing a report on the Rs 80,000 crore Indian sugar industry, McKinsey said the sector is facing "worst-crisis in 30 years" and suggested various short and long term measures to bail-out millers such as boosting export and raising production of cane bye-products including ethanol.
The consultant also said that sugar mills currently owes about Rs 65,000 crore to banks and sugarcane farmers. Cane arrears to farmers are about Rs 14,500 crore, at present.

"To balance supply-demand situation, 4-6 million tonnes of surplus sugar need to be pulled out from the system through exports or some other measures," said Avinash Goyal, Partner, Mckinsey and Company in India.
Besides exports, the consultancy firm suggested that cane production needs to be stabilised by giving the right price signals. It advocated revenue maximisation of bye-products and setting up of price stabilisation fund by increasing cess on domestic sales.
"Options could include considering removal of some restrictions on bye-product, increasing ethanol blending norms and setting up distilleries and co-generation units," the report said.

With excess supply of sugarcane production, McKinsey said sugar prices have come down, which has led to Indian millers operating at uneconomical EBIDTA (earning before interest, tax, depreciation and amortisation) margins for the last 3-5 years.

"Many sugar mills are distressed with low profitability and return on equity and have defaulted on loans with significant arrears on payment to farmers," McKinsey said.
The consultant said that a revitalised sugar industry in India could have the potential to contribute significantly to the economy.
Listing out the benefits of vibrant sugar sector, McKinsey said it would provide job security and a stable income to more than 40 million people engaged in this industry including 30 million farmer households.
It has the potential to enhance food and energy security as co-generation could have the potential to produce around 30 billion units of power annually.

Stating that the sector can contribute to foreign exchange savings, Goyal said the country could save USD 1.7 billion currently spent on imports by 10 per cent ethanol blending with petrol.
Sugar sector is facing a huge liquidity crunch as output has exceeded the domestic demand for the last five years. The trend is expected to continue in the next sugar marketing year (October-September).
Sugar production of India, the world's second largest producer and biggest consumer, is estimated at a record 28.3 million tonnes in 2014-15 marketing year (October-September) as gainst the demand of 25 million tonnes. The closing stock of sugar is estimated at about 10 million tonnes.