Govt explains E20 pricing, but transparency and tax relief remain unclear

The government explains E20 petrol pricing citing higher ethanol procurement cost, but motorists still lack a transparent price build-up, a cost-per-km comparison and a retail tax concession

Earlier this month, the government released fact sheets addressing common concerns about E20 fuel. Among other points, the fact sheets appeared to contradict a 2021 NITI Aayog report, which said ethanol-blended fuel should be cheaper than regular petrol to encourage consumption. The government, however, argued that E20 petrol is no longer cheaper because ethanol itself has become a costlier input.

 

While that may be true, the same NITI Aayog report recommended considering tax incentives for E10 and E20 fuels to compensate consumers for lower fuel efficiency. The government’s fact sheets also do not disclose the corresponding refinery or depot cost of petrol, the cost of blending the two fuels, or the tax incidence on each component of a litre of E20.

   

So, what do vehicle owners stand to gain if they are paying the same for ethanol-blended fuel despite lower fuel efficiency?

 

Why ethanol is no longer cheaper than petrol

 

The government administers ethanol procurement prices according to the feedstock used. Sugarcane-based ethanol prices are approved by the Cabinet Committee on Economic Affairs, while prices for ethanol made from foodgrains are determined by oil marketing companies (OMCs).

 

Procurement prices have risen sharply since the E20 roadmap was prepared. The price of ethanol made from C-heavy molasses increased from ₹46.66 per litre in Ethanol Supply Year (ESY) 2021-22 to ₹57.97 in ESY 2024-25. Maize-based ethanol rose from ₹52.92 to ₹71.86 per litre over the same period. Prices for ethanol made from B-heavy molasses, sugarcane juice, damaged foodgrain and rice are lower than the maize rate.

 

According to CK Jain, president of the Grain Ethanol Manufacturers Association, feedstock accounts for 60-75 per cent of the cost of producing ethanol.

 

According to Anuj Agarwal, founder and chairman of Sunbridge Group, procurement prices alone do not tell the full story.

 

"Ethanol economics cannot be viewed through the lens of procurement price alone. While feedstock is a major cost, production is also influenced by energy, logistics, financing, plant efficiency and compliance costs," Agarwal told Business Standard.   

What goes into the price of one litre of petrol?

 

One litre of E20 contains 80 per cent petrol and 20 per cent ethanol. A meaningful comparison would, therefore, require the cost of both components at the depot, along with freight, storage, blending expenses, OMC margins, central duties, dealer commission and state value-added tax (VAT).

 

The publicly available Indian Oil price build-up for Delhi, effective May 25, shows a price charged to dealers of ₹81.08 per litre, excluding VAT. Dealer commission is ₹4.45 and VAT is ₹16.59, taking the retail price to ₹102.12 a litre. It does not separately disclose the cost of ethanol, the petrol component or blending expenses.

 

The Petroleum Planning and Analysis Cell (PPAC) also lists only the consolidated retail price build-up for 'petrol', rather than separate calculations for E20 and unblended petrol.

 

“It would be meaningful to see the price build-up for E20 showing the different cost components like the FOB price of the Indian basket of crude oil, refining cost with OMC margin, cost of ethanol procurement including GST, transportation and storage, followed by central excise duty, and other charges and taxes,” said Shyamasis Das, fellow at the Centre for Social and Economic Progress.

 

Without that disclosure, the government’s claim that E20 is costlier to produce cannot be translated into a per-litre figure showing how much more it costs, who bears the difference or whether it is passed on to consumers.   

Does E20 cost motorists more per kilometre?

 

The pump price is only one part of the consumer’s cost. Fuel efficiency determines how far a motorist can travel on a litre.

 

The petroleum ministry’s latest clarification acknowledges that some vehicles may record a 3-5 per cent reduction in fuel economy on E20.

 

The 2021 NITI Aayog roadmap gave more vehicle-specific estimates. It projected a 6-7 per cent efficiency loss for four-wheelers originally designed for unblended petrol and calibrated for E10, 3-4 per cent for similarly designed two-wheelers and 1-2 per cent for four-wheelers designed for E10 and calibrated for E20. It said engine modifications and tuning could reduce the loss.

 

Let's understand it through an example. At Delhi’s price of ₹102.12 a litre, a car delivering 20 kilometres per litre has a fuel cost of about ₹5.11 per kilometre.

 

If mileage declines by 3-5 per cent, to between 19.4 and 19 kilometres per litre, the cost increases to approximately ₹5.26-5.37 per kilometre, assuming the pump price remains unchanged. To offset that mileage loss entirely, the fuel would need to be priced about 3-5 per cent lower, which is roughly ₹97.01-99.06 per litre in this illustration.

 

The calculation is indicative and would vary according to the vehicle, engine calibration, driving conditions and actual mileage. But it underlines why comparing only the retail price per litre may not capture the consumer impact.

 

Are there any tax benefit for motorists using E20 fuel?

 

The tax structure provides incentives for producing and blending ethanol, but that rebate is not visible on a motorist’s fuel bill.

 

Ethanol supplied to OMCs or refineries for blending with petrol attracts 5 per cent GST. Petrol remains outside the GST framework and attracts central excise duties and state VAT.

 

PPAC’s current tariff schedule lists central duties and cesses totalling ₹16.90 per litre on regular petrol. It also imposes an additional basic excise duty of ₹2 per litre on unblended petrol intended for retail sale. E20 avoids this additional levy, giving it an explicit tax advantage over unblended petrol.

 

State taxes add another layer. Delhi currently levies VAT of 19.40 per cent on petrol, including VAT on dealer commission. State tax rates vary substantially across the country, but PPAC’s published schedule does not show a separate lower VAT rate for E20.

 

The NITI Aayog roadmap had anticipated this problem. It said that if ethanol prices rose above petrol prices, consumers might have to pay more for blended fuel and “tax (GST) breaks on ethanol may become necessary”. It also recommended price incentives through tax relief at the retail level to support the transition to E20 and compensate consumers for reduced fuel efficiency.

 

Das said any benefit from blending should be passed on if it lowers retail prices, but cautioned against subsidies for their own sake. "Artificially subsidising E20 will not serve any national purpose because this will either lead to the under-recoveries for OMCs or burden the public exchequer, defeating the very purpose of blending: to avoid cost to the economy from high fuel price," he said.

 

Transparency remains the missing piece

 

 

The government's explanation may be correct that ethanol is no longer the cheaper input it was when the NITI Aayog roadmap was prepared. But consumers still do not know how ordinary petrol and E20 compare on a like-for-like basis after accounting for procurement costs, refining, blending, taxes, margins and logistics.

 

Akshay Modi, managing director at Modi Biotech, said a meaningful comparison should consider the entire cost chain for both fuels. "Comparing ethanol and petrol on price per litre alone is like comparing two currencies without accounting for purchasing power. The right comparison factors in price stability and the broader economic value of domestic fuel production."

 

Publishing this data, experts say, would help motorists understand whether E20's higher cost is justified and whether they receive any direct benefit at the fuel pump.