India considers cutting import tax on biodiesel

By Nicholas Zeman | June 09, 2009
Posted July 8, 2009

In a bill introduced to the Indian Parliament on July 6 meant to "give effect to the financial proposals of the Central Government for the financial year 2009-2010," the Indian Ministry of Finance said it wants to reduce the basic customs duty on biodiesel from 7.5 percent to 2.5 percent. It also seeks to exempt blended fuels from an excise tax on domestically produced goods.

Previously exempting biofuels from the excise tax-while petrol continued to pay-was seen as a way to promote the success of renewable energy in the market place. Allowing blended fuels tax benefits too, however, could grow the use even more. "I see a lot of value [in India], but the question will be transport and logistics," a Chicago trader told Biodiesel Magazine.

India and Asia have huge market potential for U.S. biodiesel sales. "India lacks sufficient domestic energy resources and must import much of its growing energy requirements," reported the U.S. DOE. "The country's ability to secure a reliable supply of energy resources at affordable prices will be one of the most important factors in shaping its future energy demand."

Last year when India raised oil prices citizens took to the streets in protest. The Indian government controls the nation's fuel pricing mechanism, and despite the riotous episode in 2008, it has taken steps to deregulate the market in recent years. The state does, however, still heavily subsidize domestic prices of oil products such as diesel, liquid propane gas, and kerosene for consumers. "As such, demand for petroleum products in India has been substantially influenced by the government's pricing scheme," The DOE stated. "With diesel prices significantly lower than other fuels, such as gasoline, demand for diesel rose substantially, by as much as 25 percent between 2006 and the first half of 2008."

Certainly India is a huge market for transportation fuels, and the international tariff game that could play out as more countries look to increase their biofuels usage while limited resources are available. This should all be good news for the biodiesel industry-diesel demand rising sharply in the world's second most populous nation, which is growing its wealth, and a recent lowering of an import tax on biofuels. "I've seen a handful of shipments to India-from Argentina and a couple from the Northwest-and I've been selling biodiesel for ten years," said the trader.

In 2007, India consumed approximately 2.8 million barrels of oil per day, making it the fifth largest consumer in the world, and demand grew to nearly 3 million barrels per day in 2008. This is a sales situation that the biodiesel industry will play a part in once it positions itself to move large volumes half way around the world. "Without a doubt the U.S. will be a net exporter of biodiesel, it will go to the highest bidder and tariffs will dictate the economics," the trader said. "But right now there is absolutely no market, and the commercial volumes aren't available to make a shipment to India feasible."

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