Cabinet sets new biofuel target, risks food price row

A labourer peels sugarcane at a wholesale market in Siliguri in this February 27, 2008 file photo. India aims to raise blending of biofuels with petrol and diesel to 20 percent within a decade, threatening a revival of the food-versus-fuel debate.

NEW DELHI (Reuters) - India aims to raise blending of biofuels with petrol and diesel to 20 percent within a decade, threatening a revival of the food-versus-fuel debate.

Critics blame biofuels for recent soaring food prices, which have encouraged many countries, including India, to restrict exports of most grains to avoid shortages.

"An indicative target of 20 percent blending by 2017 may be kept, both for bio-diesel and bio-ethanol," the government said in a statement on Thursday.

India imports 70 percent of the oil it consumes and has already asked oil firms to mix ethanol with petrol to 5 percent of volume almost nationwide.

It aims to double that to 10 percent from October 2008, when the new cane crushing season begins.

World Bank economist Don Mitchell has said large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices.

Higher use of biofuels will intensify the debate on the use of farmland for fuel in India, and encourage farmers to reduce grain cultivation for food, said T.K. Bhaumik, an economist with Assocham, a leading business chamber.

"Land is not elastic. If there is more pressure to grow oilseeds or corn to derive biofuels and farmers get a good price for them, they will obviously neglect grain production," he said.

He said fuel consumption in India was rising about 7 percent annually, requiring a proportionate increase in blended biofuel.

"Where will it come from? Even a rise in agriculture productivity will fail to match the requirement," Bhaumik said.

While the use of ethanol has been introduced successfully in India, the use of bio-diesel has not taken off and many Indian companies have shelved plans to invest in related projects.

Analysts say India consumes 40 million tonnes of diesel a year, way above annual petrol demand of 8-9 million tonnes, and in 2003 announced plans to replace around five percent of its diesel consumption with biodiesel made from jatropha.

But ministers have differed over subsidies for biodiesel, obstructing progress on a new policy for the sector.