Recently in September 2018, we saw oil prices reaching a four-year high at $ 81.20/barrel. This resulted in fall of the Indian rupee and thus widening of India’s trade deficit to $50 billion from $ 32.5 billion a year ago. Clearly, it shows how badly the price of crude oil can impact the Indian economy.
To our relief, the prices of crude oil are reduced now but OPEC’s target is to stretch them to $70.So in order to curb the problem of rising consumption and prices of crude oil, the government has fixed an official target to cut the oil imports by 10% in the next 4 years.
One of the potential solutions that the government can look into is the blending of ethanol with petrol. This is not something new to the world which is being done successfully by Brazil.
Brazil is the world’s largest producer and exporter of sugar. But due to lower prices and a global surplus, it faced with its over-stocking of the sugar. Also owing to the rising prices of crude oil, Brazil started running its wheels on ethanol blended petrol and also on pure ethanol. In fact, the vehicles running on blended petrol now constitute 80% of the country’s light vehicle float. To achieve this, Brazilian sugar mills used 64% of the sugarcane crop grown in 2018 to produce ethanol. Thus, through a single solution, Brazil solved the problem of high sugar surplus as well as depleting foreign reserves due to rising prices of crude oil.
In the year 2018, India will produce about 35 million tonnes of sugar as against 32.5 million tonnes of sugar produced in 2017. As average yearly consumption of sugar lies at 26 million tonnes, about 9 million tonnes of the surplus will remain over-stocked in the hands of the Indian government.
As India produces low-quality white sugar, the demand for Indian sugar in the international market is low. Thus the scope of exporting entire surplus is not great and an alternative needs to be developed.
With such a huge pile of surplus sugar and pressure of dynamic oil prices, India can follow the path of Brazil and can tackle the issue wisely.
(Written by Dhiraj Jadhav, First-Year MMS)