Blended fuel and BJP's mileage

While EBP may be a great idea, it needed three to four years of preparation. Now, the result is a sugar shortage, imports that are bleeding foreign exchange, and higher prices in the festive season

The debate over whether India’s gross domestic product (GDP) grew by 7.8 or 2.6 per cent in the first quarter has made our prime time angrier than usual. Sergio Gor must have enjoyed the spectacle of competitive name-calling as studio warriors turned into economists overnight. Great fun till it lasts. But politically, this is the wrong debate. In any case, it will be over soon since we’re already well past two-thirds of the second quarter.

 

Why is this the wrong debate and, if so, what’s the right one? It’s wrong not just because it’s transient but because in this polarised environment people will passionately believe what their politics dictates. No voter will change their mind on account of GDP data. The debate that matters is entirely different: The anger over ethanol blending.

 

A lot of the vehicle-owning class, mostly the Hindu middle class, is a committed Modi-Shah Bharatiya Janata Party (BJP) vote bank. They’re furious. We haven’t seen any polls on this, but over the past several months now, I’ve met scores of people, complete strangers at airports, weddings, hotel lobbies, visitors, Uber drivers, all united in anger.  Their gripe: How the hell can they force ethanol-blended petrol (EBP) down my throat?

 

A large majority would’ve defended the Modi government’s growth numbers with equal passion. Translated, it means that the “base” this BJP takes so seriously is furious with it over just this one issue. Of course, they all believe we won Op Sindoor, and that their leader is held in awe by the world, including Putin and Xi, “as we just saw at Bishkek”. Then why punish me with this “adulterated” petrol? Broadly speaking, here are their questions:

 

> What benefit do I get? I pay the same price, but get less mileage, as the government admits. Further, it might damage the engine while I’m still paying EMIs.

 

> What benefit does my country get? If there’s any, why am I not being told?

 

> Why am I not given a choice? First, nobody tells me why I should use EBP. Then I’m told to take it, or take a walk. Literally.

 

>  Who’s benefiting from my suffering or sacrifice?

 

These are good, important questions and the government probably has the answers. It’s surprising how it hasn’t cared to take its voters into confidence. Nobody prepared the consumer for this change. Just a panoply of ministers now being lined up to explain the benefits — to the farmer, in foreign exchange savings, and in emission reduction — make no impact. If there’s one thing the BJP’s base is angry about, besides the repeated examination scams, it’s EBP.

 

Since 2014, the middle class, with a vast Hindu majority, has been the Modi government’s most steadfast vote bank. It’s been so loyal that it voted for Mr Modi even as it fretted and fumed over high fuel prices. It was forgiving even when crude was at its lowest and the government kept on taking the cream by raising excise duties. That windfall was efficiently distributed among the poor as free grain and other direct benefits. It helped the BJP keep winning elections.

 

This is what I had once described as “hybridised Robin Hood”: Take from the loyal middle class, distribute to the poor, and don’t bother the rich. It was cheeky, yes. But the point is that just as the “secular” parties take the Muslim vote for granted, the BJP can presume the massive Hindu middle class as theirs. They accepted the high fuel prices because they bought into Modi’s promise of Hinduised nationalism. The same voters are now angry.

 

Nobody ever prepared them for it. Odd for a party that takes pride in its leader’s ability to sell the toughest decisions to its voters, demonetisation and the sudden nationwide Covid-19 lockdown included. Intellectually, it’s been promoting the idea of “nudge” economics. For EBM, there was neither a call to action, nor a nudge.

 

It’s as if the idea caught somebody’s fancy and we serendipitously moved from 1.56 per cent blending in 2013-14 to almost 20 now. And there’s heady talk of 30 per cent.

 

There are two problems, however. One, the buyers are furious and have the numbers. Second, more ethanol isn’t available. There isn’t even enough to sustain current blending unless you start dipping deep into grain (rice) reserves. Moreover, people won’t accept any more blending.

 

On paper, replacing imported crude with home-grown ethanol looks good. It’s just that you aren’t sitting on an ethanol reserve, in which case you can “drill, baby, drill” and start pumping. Your farmer has to grow it, as sugarcane, maize, or paddy.

 

This was an idea conjured up through years of sugar surplus. The sugar mills could recover their money and pay farmers their dues. So heady was this that sugar mills were even allowed to divert sugarcane juice to ethanol. The markets were already awash with sugar.

 

This was neat, except nobody gamed in the vagaries of farming: Commodity markets, rains and, for heaven’s sake, pests. Sugarcane dramatically went from surplus to scarcity within a single cropping year, particularly as red rot (fungus) and top borer (insect) sucked away the yields.

 

This season began with opening sugar stocks lower by five million tonnes (over 34.3 MT base), and they are trending towards 28. The result is a nearly 50 per cent increase in sugar prices. Expectedly, the old movie has been playing out: Stock controls, attack on “hoarding and profiteering,” ban of exports, opening up duty-free imports. Can we let sugar prices shoot up with the festival season upon us? Are you serious?

 

Over time, as ethanol procurement was hiked breathlessly, from 380 million litres in 2013-14 to 12,000 million litres this year, refiners turned to maize. And then maize prices went up nearly 50 per cent too. This presages higher dairy, poultry and meat prices as maize goes into the feed. Now came the turn of paddy. First, broken rice, and then any surplus rice. This is being sold by a government desperate to keep the blending on with 7.5 million tonnes of rice allocated for fuel this year, at about half the market price.

 

I pick much of this data from Harish Damodaran and Ashok Gulati’s fine insights in The Indian Express. Let me sum it up for you. While EBP may be a great idea, since it depended on agriculture, it needed three-four years of preparation. To persuade the farmer to change crop choice, to create a market, to ensure that we do not fall short of any essential commodity and walk into the food-versus-fuel trap and, finally, convince the consumer of blended petrol. Ideally, give them a choice, with blended petrol significantly cheaper. That’s easily done by adjusting excise duties.

 

The result now: There’s sugar shortage, foreign exchange is bleeding, prices are up in festive season, you are diverting rice buffer stocks at nearly half the price for EBP. Of course, the “influencer” community is monetising this as the angry and confused millions watch.

 

In so many ways, this underlines the Modi government’s approach on several key issues. In the past, especially after demonetisation and farm bills (which I supported editorially), we have compared the Modi government’s shock-and-awe decision-making to a paratrooper who jumps without checking the parachute. Once the government’s mind is made up, there is no patience for boring old “staff work,” or some war gaming. It is dismissed as bureaucratic nonsense and “Congress-style” analysis-paralysis.

 

Something similar has happened with EBP. We are short of sugar, ethanol, and prices of everything involved are going up, including crude oil. Another rollback should be on the cards, even if partial, to either reduce blending to 10 per cent or offer consumers a choice. Remember this anger comes from committed BJP voters.

 

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