India Cuts GST on Ethanol from 18% to 5%

India Cuts GST on Ethanol from 18% to 5%

by 5paisa Research Team Last Updated: Dec 14, 2022 - 12:06 am 42.9k Views

The government has announced the cut in GST rates on ethanol meant for blending from 18% to 5%. It may be recollected that the government had pushed back the target of 20% ethanol blending in petrol from 2025 to 2030. This sharp cut in GST is in sync with the thrust that the government has been laying on ethanol blending.

Under the Ethanol Blending program, the government has set a target of blending 20% ethanol with petrol and 5% bio-diesel with diesel. When ethanol is blended with petrol, the calorific value comes down but it also substantially reduces the use of fossil fuels and ethanol blended petrol is more environment friendly. 

The ethanol blending also has a macro relevance. India currently relies on imports to meet 85% of daily crude oil needs. By moving to 20% ethanol blending, this dependence on imports can be reduced. That is likely to have a salutary impact on the trade deficit as well as reduce the stress on the Indian rupee vis-à-vis the dollar.

In petrol blending, the predominant blending agent is ethanol which is either based on sugarcane, sugar or sugar syrup. The grain based ethanol is relatively much smaller and the government is also keen to encourage sugar based ethanol blending as it also allows to better manage the sugar surplus situation in India.

The reduction of GST is unlikely to have a material impact on the sugar company balance sheets as under the GST rules, any GST cut presupposes 100% pass through to the end customer. Here, the benefit will have to be passed on to the oil marketing companies who procure the ethanol from the sugar companies for the purpose of blending.

But the positive rub-off will be at other levels. Firstly, in the last few quarters, ethanol has contributed more to the EBITDA of sugar companies than the sale of raw sugar. Secondly, lower GST will enable reduced pricing for ethanol blended petrol. This is not only an encouragement for people to shift to blended petrol but also the lower price reflects the lower calorific value in ethanol blended petrol.

Over the last 7 years, the annual ethanol procurement by OMCs has expanded over 9-fold from 38 crore litres to 350 crore litres. A more rational duty structure would be in tune with the government policy to encourage ethanol blending and reduce the international dependence on crude.

Also Read:-

Sugar Stocks Shine on Record Sugar Exports

How do you rate this blog?


Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Open Free Demat Account

Resend OTP
Please Enter OTP
Account belongs to

By proceeding, you agree to the T&C.

Latest Blogs
Nifty Outlook for 9 June 2023

Our markets started the day on a positive and continued the positivity in the first hour of the trade. Nifty rallied towards 18800 but fell short to reach the level and it witnessed selling in the later part of the day. The index finally ended the day below 18650 with a loss of about half a percent.

  • Jun 08, 2023
Nifty Outlook for 8 June 2023

Post consolidating in a range for the last few days, Nifty resumed its uptrend and rallied higher led by broader market participation. The index surpassed the 18700 mark and ended well above that with gains of around seven-tenths of a percent.

  • Jun 07, 2023
Bearer Cheque

Introduction A bearer cheque is an efficient and adaptable financial tool. It is a method of payment where the cheque is made out to the owner or bearer of the document. Bearer cheques enable the holder to cash or deposit the cheque without any requirement for identification or endorsement, in contrast to other cheques payable to a specific person or business.

  • Jun 06, 2023

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number