Home / Industry / Energy /  Higher GST rates will make biodiesel costlier than diesel: manufacturers

Mumbai: An 18% levy of goods and services tax (GST) on biodiesel and ethanol has upset the ethanol and biodiesel manufacturers.

GST on these green fuels, say industry analysts, could adversely impact the growth of the fledgling industry.

“A high tax rate would impact consumption by heavy users like the oil marketing companies, Indian railways and road transporters. Besides, farmers may switch back to using polluting fuels and other products," said Sandeep Chaturvedi, president, Biodiesel Association of India, adding that a higher GST rates would make biodiesel costlier than diesel.

For the last decade, biodiesel has enjoyed zero excise duty and value added tax in select states. Biodiesel’s supply in India began only two years ago.

Biodiesel is extracted from plants such as jatropha, vegetable or animal fat, and mixed with regular diesel to reduce the carbon emissions and cut import dependency. Ethanol is produced using non-edible agricultural waste left over after harvesting. This could include corn cobs, rice straw and wheat straw, among others. Currently, technology is available to convert cellulose into sugar, which can later be fermented to form ethanol.

The country is targeting a more than seven-fold expansion in its biofuel market in the next six years. Blending 5% of biodiesel with diesel and 10% ethanol with petrol can expand the biofuel market to Rs50,000 crore by 2022 from about Rs6,500 crore currently. For this, India would need 6.75 billion litres of biodiesel and 4.5 billion liters of ethanol.

“Bio ethanol is a big segment and one that it is still attractive despite the taxes and duties. So ethanol has accepted that it will attract duties. However, biodiesel has a definite problem. Also, viability issues for biodiesel is far more as feed stock is more expensive for biodiesel than for ethanol. Cost of production of biodiesel is very high as feedstock is not bio waste. So a higher tax rate may pinch them," said a renewable energy consultant on the condition of anonymity as he is not allowed to talk to reporters.

OMCs are currently selling biodiesel in West Bengal, Orissa, Andhra Pradhesh, Chennai and Gujarat, after procuring it from biodiesel manufacturers and blending it.

The companies are also in the process of setting up around seven 2G ethanol plants across the country, at the cost of Rs4,000 crore to help enhance ethanol availability for blending with petrol.

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