Government

Issue 1:
Biodiesel Feedstock Issues for Placing Before the Government

The National Policy on Biofuels adopted in 2009 envisaged an accelerated promotion of the cultivation, production and use of biofuels to increasingly substitute petrol and diesel for transport. It aimed at contributing to energy security and climate change-mitigation besides creating new employment opportunities.

The policy also envisaged the exploitation of potential of trees bearing non-edible oilseeds and encouragement of R&D by the industry in the areas of development of improved planting material and conversion technologies of first-and-second-generation of biofuels.

What ensued was that in 2005–2010, attracted by the unlimited scope of the market for fuels, many entrepreneurs started biodiesel production units without properly securing the availability of raw materials. Some of them also embarked on the plantation of Jatropha with farmers with unproven seed stock. This led to failed plantations, agitated farmers who removed the plantations and closed units due to lack of raw material availability.

The Government's efforts through institutions like DBT to supply improved planting material was restricted to collection and characterization of local germplasm while the core varietal improvement work was done by very few institutions like TNAU, CSMCRI, etc. which was not a co-ordinated effort.

This resulted in the following issues (feedstock):

  • Inferior varieties of Jatropha
  • No proper agronomy trials
  • Lower or insignificant yields on farmers fields
  • Uprooting of plantations by farmers
  • No or insignificant raw material supply
  • Import-dependent industries stifled by bans
  • Closure of processing plants
  • No money flowing back for production
  • Loss of reputation of Jatropha and biofuels

The above situation makes future efforts for mass cultivation of biofuel crops very difficult.

Recommendations/Proposals to Mitigate the Above Placed Before the Government
  • Formulation of strategies to systematically build a base of variety of raw material options for biodiesel with a greater depth and diversity over a period of 5-10-years.
  • The Government of India (GoI) should consider mandating ICAR to develop hybrids, high-yielding varieties and a suitable package of practices for the cultivation of Jatropha and TBOs.
  • AICRPs (All India Co-ordinated Research Projects) on Jatropha and few TBO crops like Pongamia, Calophyllum and Madhuka may be launched to develop varieties with a high per hectare oilseed productivity.
  • Additionally, a package of practices to maximise productivity should be put in place.
  • GoI should provide tax-breaks to incentivise investments from traditional seed companies and other players for developing varieties and hybrids in Jatropha and other TBOs. Since these activities would need sustained funding, we propose a 200% IT rebate of the eligible expenses.
  • Encourage Oil PSU JVs created specifically for this purpose, energy companies and other public and private companies to develop improved varieties and hybrids by themselves or in collaboration with international firms. These activities should qualify for CSR funding.
  • Efforts to popularise cultivation of Jatropha and TBOs by conducting large-scale demonstrations by public and private institutions should be encouraged through tax-breaks or grants.
  • These demonstration projects should be made eligible for funding under the national clean technology mission for part-funding and/or providing assistance by way of grant.
  • Encourage international technical co-operation. In case of Jatropha, good work is being done in the US and Singapore. Collaborations with institutions in these countries can be incentivised by underwriting the costs of technology imports by Indian institutions and industry. We propose an R&D funding mechanism that could provide up to 70% funding of eligible projects by way of grants/soft loans.
  • Encourage and incentivise the collection and processing of minor non-edible oilseeds like Pongamia, Madhuka, Calophyllum, etc. to produce vegetable oils for biodiesel production. A few pilot projects could be developed through the Public Private Participation (PPP) route.
  • Incentivise the models of collection, distribution and processing of waste oils streams for production of biodiesel as was done in Europe. It is proposed that EoIs be called for running a few pilot projects in metro cities to get more data on such projects and their viability.
  • Encourage development of alternate feedstocks like Marine Algae with very *****high and orders of magnitude higher per unit productivity and non-usage fresh water and other such advantages for the longer term.*****to be checked
  • Establish a national mission on feedstock development with all institutions such as DBT, ICAR and DOA with a composite strategy of development of various alternative raw materials to alleviate problems associated with mono culture, Seasonality, etc.
Issue 2:
Taxation Issues

Thought the Government has put in place a progressive tax regime for biodiesel, various states are subjecting the blended portion of the biodiesel to a significantly high taxation in line with the rates applicable for diesel. In most states, the VAT on biodiesel is about 4% whereas HSD is a non-VAT commodity with special tax rates of 10-28% depending upon each state. In some cases, additional octroi and special taxes are also levied.

State Governments where maximum capacity was installed wanted to tax biodiesel at the rate of HSD which would increase the cost by about 20%, making it economically unviable.

There is a need to put biodiesel in the declared goods category and the GoI must make use of its powers to restrict the State Governments to tax biodiesel highly.

Presently, there are about 5-6 large capacity biodiesel plants (10,000 to 250,000-metric tonnes per year) with capacity to produce biodiesel from alternative feedstocks. Around 110-115-million litres of biodiesel is produced from multiple feedstocks. However, the installed capacity exceeds 350-400-million litres. Putting biodiesel in the 'declared goods' list will encourage full utilization of installed capacity and further enhance capacity.

Proposals to Mitigate the Taxation Issues:
  • Include biodiesel in the list of special importance as per Section 14 of the CST Act in the `declared goods' list. Such a status would ensure uniform state sales tax on biodiesel with a maximum limit of 4 per cent VAT/ sales tax.
  • Apply Article 286(3)(a) which authorises Parliament to declare some goods as of 'special importance' and to impose restrictions on State Governments to tax such 'declared goods'.
  • Encourage biodiesel producers to fully utilize their installed capacity and further enhance their capacity. Putting biodiesel in the 'declared goods' list will encourage the above.
Issue 3:
National Biofuels Policy - 2009

The issue of purchase policy enunciated by MOP&NG during October 2005 wherein a landed purchase price of Rs.26.50/ltr was announced in 2006, has been a cause of concern. This price fell short of even the raw materials cost of the biodiesel.

In 2005-09 about 1.2-million tonnes capacity was created but the installed capacity was highly under-utilized. Besides, the biodiesel being produced was mainly being exported.

The National Biofuels Policy announced in December 2009 encouraged installation of capacity but closed all marketing opportunities by giving absolute monopoly on marketing and pricing to OMCs.

The national Jatropha mission was deferred and the indigenous feedstock program did not take off. The policy completely banned imports of economically available fatty acids and other non-edible oils. The policy further banned exports of biofuels. Hence, only 100% EOUs or those in SEZs could operate and rest all industry was closed.

Several representations were made to the Government but it was only in 2013 that serious discussions took place. Meanwhile, several units were forced to shut down.

Proposals Put Before the Government on the Policy Front
  • To provide marketing opportunities to all players instead of giving absolute monopoly on marketing and pricing to OMCs
  • To lift the ban on economically available fatty acids and other non-edible oils which act as feedstock for biofuels
Recommendations
Advocacy for DSIR Recognition for R&D for Member Companies

Government of India has announced a number of fiscal incentives for research and development by industry from time to time and many of these incentives are implemented through DSIR. In-house R&D units recognised by DSIR are not only eligible for these incentives (wherever applicable) but also for receiving funds for R&D from other government departments and agencies such as DST, DBT, CSIR, ICMR, ICAR and TDB where recognition to the in-house R&D centre by DSIR is a requirement. This is the only scheme in the entire government set-up for benchmarking industrial R&D.

Fiscal Incentives and Support Measures for DSIR Recognition for R&D
  • There are a number of fiscal incentives and other support measures aimed at promoting R&D in industry and also at encouraging the utilization of locally available R&D options for industrial development. Some of them are as follows:
  • Incentives based on direct taxes (Income-Tax Act, 1961)
  • 100% write-off of revenue expenditure on R&D (Section 35(1)(i) of IT Act).
  • 100% write-off of capital expenditure on R&D in the year the expenditure is incurred (Section 35(1)(iv) of IT Act).
  • Weighted tax deduction @175% (to the sponsor) for payments made to approved national laboratories, universities and IITs or a specified person, with a specific direction that the said sum shall be used for scientific research under a programme (Section 35(2AA) of the IT Act).
  • Weighted tax deduction @200% on expenditure (other than land & buildings) incurred on approved in-house R&D facilities of companies engaged in the business of BIO-TECHNOLOGY or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule [Expenditure on scientific research in relation to drugs and pharmaceuticals, includes expenditure incurred on clinical drug trials, obtaining approvals from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970) (Section 35(2AB) of the IT Act.)
  • Accelerated depreciation allowance for investment on plant and machinery, made on the basis of indigenous technology (Rule 5(2) of IT Rules, 1962).
Further Recommendations
  • Formulation of strategies to systematically build a base of variety of raw material options for biodiesel with a greater depth and diversity over a period of 5-10-years.
  • The Government of India (GoI) should consider mandating ICAR to develop hybrids, high-yielding varieties and a suitable package of practices for the cultivation of Jatropha and TBOs with explicit, time bound targets.
  • AICRPs (All India Co-ordinated Research Projects) on Jatropha and few TBO crops like Pongamia, Calophyllum and Madhuka may be launched to develop varieties with a high per hectare oilseed productivity.
  • Additionally, a package of practices to maximise productivity should be put in place.
  • GoI should provide tax-breaks to incentivise investments from traditional seed companies and other players for developing varieties and hybrids in Jatropha and other TBOs. Since these activities would need sustained funding, we propose a 200% IT rebate of the eligible expenses.
  • Encourage Oil PSU JVs created specifically for this purpose, energy companies and other public and private companies to develop improved varieties and hybrids by themselves or in collaboration with international firms. These activities should qualify for CSR funding.
  • Efforts to popularise cultivation of Jatropha and TBOs by conducting large-scale demonstrations by public and private institutions should be encouraged through tax- breaks or grants.
  • These demonstration projects should be made eligible for funding under the national clean technology mission for part-funding and/or providing assistance by way of grant.
  • Encourage international technical co-operation. In case of Jatropha, good work is being done in the US and Singapore. Collaborations with institutions in these countries can be incentivised by underwriting the costs of technology imports by Indian institutions and industry. We propose an R&D funding mechanism that could provide up to 70% funding of eligible projects by way of grants/soft loans.
  • Encourage and incentivise the collection and processing of minor non-edible oilseeds like Pongamia, Madhuka, Calophyllum, Moringa etc. to produce vegetable oils for biodiesel production. A few pilot projects could be developed through the Public Private Participation (PPP) route.
  • Incentivise the models of collection, distribution and processing of waste oils streams for production of biodiesel as has been done in Europe, USA and China. It is proposed that EoIs be called for running a few pilot projects in metro cities to get more data on such projects and their viability.
  • Encourage strategic, long-term development of alternate feedstocks like Marine Algae with higher per unit productivity and reduced usage of fresh water.
  • Establish a national mission on feedstock development with all institutions such as DBT, ICAR, and DOA with a composite strategy of development of various alternative raw materials to alleviate problems associated with mono culture, seasonality, etc.