Petro State India
India used to an agri state, that agriculture is now directed towards producing fuel.
India and the Middle East have a very strong trading relationship. India imports oil, gas and fertiliser from the Middle East, but also exports a lot of things, including labour to the Middle East. So much so that Indian exports to the UAE alone stand at $37 billion, and there are ambitions to take that number to $100 billion. India has both the labour and the resources to produce a vast array of goods, while the Middle East has a lot of oil wealth.
That trade was walloped when the Israeli war with Iran started in February.
Leave alone dealing with price inflation, there was no one to pay that inflated price to. All the ships were stranded in the Persian Gulf, unable to pass through the Straits of Hormuz.
India has a historic caricature of a milkman who mixes water into milk and sells it to the customer. The Indian government drew inspiration and decided to adulterate Petrol as a solution to the looming crisis. They started mixing ethanol with petrol and increasing the quantity of petrol available to them. It helped that this could be branded as green. All the petrol available in India today is E20 or contains 20% Ethanol.
So, where does this Ethanol come from? Ethanol is primarily produced by converting plant sugar into alcohol. The plant with the highest amount of sugar is sugarcane. In India, about 47% of the sugarcane is grown in the state of Uttar Pradesh, and another 22% of it is grown in Maharashtra. The two states account for almost 70% of the sugarcane grown in India. Let us say that it is a huge coincidence that both these states are instrumental in the BJP being in power.
India has had an ethanol blending policy since 2003. The idea was being piloted, and after early pilots, in 2006, it became policy to blend 5% ethanol in Petrol. In 2018, the current government began to make a push for greater ethanol blending. When the war broke out, someone said, don’t let a crisis go to waste. Blending 20% ethanol was mandated and forced through as policy.
Any fluid that catches fire in a highly pressurised chamber within certain temperature tolerances can be used as fuel in an internal combustion engine. Ethanol fits that bill.
Ethanol does not have the same energy density as petrol, and hence the mileage is bound to decrease. Also, despite distillation, Ethanol tends to contain some amount of water in it. Which is completely absent in the case of Petrol. Hence, the use of Ethanol over a long period of time or with older engines can cause the vehicle to rust.
Adulteration was always considered a bad thing to do. The sort of activity one would want to stop, but in India, adulteration has now become state policy when it comes to petrol. Of course, it helps that they can charge us $100 a barrel rates for Ethanol.
Cabinet approves Ethanol prices at Rs. 57.97 per litre for procurement by OMCs
Also, have you noticed how prices only go up for fuel in India? They never come down. When the market was asking $140 a barrel, we raised prices. When the prices returned to $70, the retail prices stayed put.
Farmers who were producing food are not harvesting crops that are used to produce alcohol, and that alcohol is being used to power the country.
Let me also disabuse you of the notion that the farmers are making more money. You can analyse the GDP of every district that is a majority sugarcane producer; their incomes have not seen any major change. In fact, Lakhimpur has the largest sugarcane cropping in Uttar Pradesh, and the per capita income for the district is Rs. 77,000. Just for reference, the poorest district in Karnataka is Kulaburagi, which has a per capita income of Rs. 1,44,449. More than twice that of Lakhimpur.
When the price of oil falls back to Earth, India uses the price increases notched during the volatile periods to run its exchequer. It is also turning the agriculture in two of the largest states (by population) in India into petroculture.