It is a fact that molasses is one of the major raw materials for production of alcoholic beverages in India. However, of late, molasses are also considered for an alternative use in blending with petrol.
Ethanol is produced from multiple sources in India. It largely comes from sugarcane or grain-based molasses and other sources as feedstock. In sugarcane, it is either through sugarcane juice or syrup, then B-heavy molasses and C-heavy molasses.
About 10-13 percent of ethanol is blended with petrol. Generally, sugarcane juice accounts for about 25% of ethanol production, B- heavy molasses about 45 percent, C- heavy molasses about 1 percent while food gains about 29 percent. India has achieved an average ethanol blending rate of 11.60 percent in the first four months of 2023-24 supply year that started from November, 2023 against the 15 percent target set by the Government for the whole year. By 2025 supply year, the Government has set the target of blending 20 percent ethanol with petrol.
The Central Government has recently imposed duty on export of molasses from India, as high as 50 percent to ensure higher availability of ethanol for the use in blending the same with petrol. In order to curb fuel cost which is mostly imported, molasses is one of the key inputs for production of ethanol which is being blended with petrol. Presently about 10 percent of molasses production in India goes for export. It may be worth emphasizing here that molasses also contributes to raw material cost of alcoholic beverages.
Notification No. 1/2024-Customs dated 15.01.2024 has inserted entry No. 9B in second Schedule to Customs Tariff Act, 1975 to prescribe 50% duty on molasses resulting from the extraction or refining of sugar (HSN Code 1703). This has been made effective from 18 January, 2024.
The government’s decision to impose a 50% duty on molasses exports aims to increase the availability of molasses for ethanol production and address concerns over sugarcane and sugar production.
The resultant extra molasses can be ploughed back into the domestic supply chain once exports are curbed. India exports molasses to countries including Vietnam, South Korea, the Netherlands and the Philippines. Production of ethanol from sugarcane-based molasses is under the scanner this year due to low sugar production. It is why the government first stopped ethanol production from sugarcane juice and has now imposed a hefty duty of 50 per cent on exports.
Molasses are often used in alcohol distilleries due to presence of high levels of fermentative sugars such as glucose, sucrose and fructose. Rum is a liquor made by fermenting and distilling sugarcane molasses or sugarcane juice. It is used to grow yeast, moulds and bacteria which transform sugar into alcohol. Some vodkas are also made from molasses, soybeans, grapes, rice etc. Molasses alcohol serves as a primary ingredient in rum. Molasses based rum is a popular choice for cocktails and mixed drinks.
While more usage of ethanol and in turn more use of molasses for petrol use may lead to higher demand resulting in rise in molasses prices, it may impact alcoholic prices too. More usage for ethanol may leave lesser stocks for alcoholic beverages and price- demand elasticity would come in. If more of molasses is diverted towards ethanol, Alco beverages sector may suffer.
Presently, 5% GST is levied on molasses. CBIC had issued notification to reduce GST rate on molasses from 28% to 5%.
Conclusion: India’s molasses export duties aim to optimize ethanol production for fuel blending, but their impact extends across multiple sectors. Striking a balance between ethanol demand and the needs of the alcohol industry is crucial for sustainable growth and economic stability.
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