India raises ethanol price by 5 percent to ease pressure on suppliers

NEW DELHI (Reuters) - India's cabinet approved a 5 percent increase in the price of ethanol to ease pressure on suppliers of the fuel and cut crude imports, the government said in a statement on Wednesday.

The price of ethanol was fixed at 40.85 rupees ($0.6327) per litre before tax, and would be applicable for a year starting Dec. 1, the government said.

India has been aiming to boost the use of ethanol, a cleaner fuel option as far as carbon emissions are concerned compared with gasoline. The government has made it mandatory to blend 5 percent ethanol in petrol.

However, oil companies find it hard to source the sugar byproduct cheaply due to high state duty it attracts because of its use in the heavily taxed liquor industry, hindering its wide acceptance as an automotive fuel.

Sugar mills, on the other hand, prefer to sell to higher-paying spirit distilleries, where they get a better and quicker deal.

Unlike Brazil, where sugar firms produce ethanol directly from cane juice, Indian millers use molasses, a by-product of sugar-making, to produce the chemical, so a rise in sugar production will also boost ethanol output.

($1 = 64.5650 rupees)

(Reporting by Sudarshan Varadhan; Editing by Amrutha Gayathri)