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The biodiesel industry in India is at a crossroads.

On the one hand, the government of India regularly comes up with policies and “mandates” that are supposed to revive the ailing industry. On the other hand, most biodiesel plants are running way below their capacity owing to the low purchase price by the oil companies which make operations completely uneconomical.

Recently, the government came up with a purchase price of Rs 34 per liter for oil companies purchasing biodiesel from these plants, but I am not sure if this policy has yet been implemented (my sources in the industry say that it has not yet been). Unless biodiesel producers get a price of about Rs 35 or above, I do not see how any of them will find it worth to operate their plants.

The feedstock supply is another major headache for the biodiesel industry. The government of India, with little knowledge about the feedstocks, bravely assumed all the data it was fed about the Jatropha crop. Almost all major plans and forecasts made by the Indian government on biodiesel had Jatropha’s success as its basis. But now it turns out that the Jatropha crop is performing far more poorly than was expected. In some areas, it is yielding only about 10% of its stated yield. And farmers will have to wait for 4-5 years to really know what the yield will be. No poor farmer in the country could work with a business that has payback periods of over six years (and possibly more!).

Despite such a bleak situation right now, I strongly feel that the Indian biodiesel industry has excellent future prospects. The reasons are as follows:

1. India is a strong diesel country. Over 60% of all petroleum products used in the country is in the form of diesel. The country uses over 60 MT of diesel every year, that would be almost a $50 billion market per year!
2. While Jatropha is right now an unreliable crop, there is a good chance that increased R&D and farmer education can significantly increase yields in future.
3. Other feedstock alternatives such as Pongamia pinnata (Karanj) could result in being more reliable than Jatropha. In this context, crops such as castor, whose yields under ideal conditions are reliably known to be about 60% of what Jatropha can provide, could come into the picture to alter the situation
4. Tougher governmental mandates and more generous incentives from government could make it far more profitable for businesses to produce biodiesel

While it is fully understandable that entrepreneurs are not keen on investing in the biodiesel business in India just yet, they will do well to keep watching that space for breakthroughs.