It's Time India Prioritised Alcohol Availability for Chemical Industry
Ashok M Kadakia,President, All India Alcohol Based Industries Development Association (AABIDA), and CEO, Ashok Chem Pharma International

Alcohol is produced from molasses primarily in India however the alternative feedstocks utilised world over include edible crops like potatoes, wheat, rice, beet, pineapple, maize etc. The low production of alcohol in the country is further likely to worsen the scenario for alcohol based industry .

Alcohol is also an important feedstock for the industry, with sizable production of acetic acid and entire production of ethyl acetate being based on alcohol. Alcohol based chemical industry occupies an important place in the Indian chemical industry and is a key contributor to the growth of the sector. In a conversation with CEW, Ashok M Kadakia, President, All India Alcohol Based Industries Development Association (AABIDA), and CEO, Ashok Chem Pharma International, talks about the present picture of Alcoholbased Industry in the country.

The current size of alcohol based chemical industry - according to 12th Five Year Plan - is USD 1.1 billion (Rs 4,850 crores). Ashok M Kadakia provides an insight into some facts, which are mentioned below:

• 1000 lit of alcohol is produced from 4.2 tons of molasses.
• 1 ton of molasses produce 270 liters of alcohol.
• 1 lit of alcohol is used to manufacture 6 bottles of whiskey.
• Government has imposed 300 percent excise duty on potable alcohol which is much higher than industrial alcohol, as a result of which many alcohol producers indulge in malpractices to increase their profits.

Industry Specific Alcohol Consumption in India
Besides two major uses - potable use by diluting and blending etc and industrial use for production of various chemicals, Alcohol is now also used for blending with petrol. According to Kadakia, earlier the quota of alcohol was equal for potable and industrial sector. But since nowadays a large percentage of alcohol is used for blending purpose, the industrial share got affected. He further mentioned that a sizable amount of alcohol is also used by paints, pharmaceuticals, cosmetics and Inks manufactures in the country.

Over the years demand has exceeded supplies. Kadakia explained that earlier govt. had distributed quota of alcohol for each of the industries (mentioned above), however with the addition of Blending of alcohol in fuel as the fourth vertical, the supplies to the chemical manufacturers had been affected. He commented, "Over the past few years 24 acetic acid plants have been shut down and many medium and small scale units have shut down in the industrial estates of Vapi and Ankleshwar, which has resulted in loss of jobs for many."

Issues and Challenges
According to Five-Year Plan 2012-2017 of Indian Chemical Industry, Alcohol production has been steadily decreasing from 2,500 million litres in FY07 to 1,824 million litres in FY10 registering a negative growth of 10 percent per annum. There are about 340 distilleries in the country with capacity of approximately 3,500 million litres. However, the capacity utilisation is low mainly due to non-availability of sufficient molasses. Though the demand of alcohol is increasing in industrial as well as potable sectors and now even for blending under Ethanol Blending Programme (EBP), the production of alcohol in has been showing a negative growth mainly due to adverse climatic conditions.

Potable sector that generate huge revenue in their business has caused a great harm to industrial sector. The demand of alcohol is higher than domestic availability and the gap is met through imports. The present demand of alcohol in the country is about 3,140 million litres. Potable sector pay more for the feedstock simply because they can afford to do so, but the situation is completely different for chemical industry, which cannot pay dollops of money to purchase the feedstock for industrial applications. Kadakia is of opinion that it is impossible for industrial alcohol consumers to compete with potable alcohol sector. He mentioned that due to states  attitude to easily allow movement of molasses or alcohol for potable sector and not for industrial usage compelled industries to purchase the feedstock at higher rate. He strongly condemned state government for imposing several duties for interstate transfer of alcohol as a feedstock for industries.

He further illustrates that currently acetic acid manufacturers need to pay huge amount for alcohol, which results in increased raw material cost. On the other hand imported acetic acid is much cheaper. This is the reason; the acetic acid manufacturers have shut down their plant in the country.

"About 19 committees were set up in the country to ponder upon the situation and all of them had suggested that alcohol should be used for industrial purpose. The price of alcohol should be maintained and the entire distribution system should be streamlined. Unfortunately none of the suggestions were ever considered by policy makers," Kadakia added.

Sugar production is cyclical in nature; hence there is volatility in the prices of molasses and alcohol. This leads to severe fluctuations in prices of feedstock.

"Taxation under the central excise act and cascading taxation under the state VAT/sales tax laws leads to high prices. The states levy taxes on molasses and ethyl alcohol at different rates and restrict VAT credit when used as input. Consequently, such taxes levied by the states get embedded in the cost and are not neutralised even when the final product is exported out of the country. The multiple state levies impact the competitiveness of the industry," (Five-Year Plan 2012-2017.)

The Way Forward
Taxes and several import duties imposed by state government is one of the major issues that need to be addressed immediately, advocates Kadakia. Quoting the Action plan 2012-2017, he emphasised on the need to modify regulation of molasses in the country. In this direction, Coverage of alcohol under GST can play a remarkable role as it will ensure their uniform taxation in different states, with facility of input tax credit when used for manufacture of chemicals. Alcohol when used for manufacture of green chemicals has 70 percent more GHG savings as compared to usage of mineral oil for the same purpose. Carbon footprint of alcohol based chemicals is more favourable as compared to fossil fuel based chemicals.

Elaborating the point, Kadakia said, "Alcohol-based chemical industry contributes to green chemistry as they use renewable feedstock, which is much better than choosing petrochemical route. It is a fact and very well acknowledged by all. Government should make enough efforts immediately to regulate the supply to industrial sector."