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Government’s biodiesel programme holds the potential of sustainable entrepreneurship development and meeting all three objectives of economic growth — social equity job creation and environmental sustainability

The Government’s launch of a biodiesel programme represents a unique case for the development of numerous sustainable entrepreneurs employment generation empowerment of the subaltern masses by providing them ownership/occupational rights to wasteland and degraded forest land and reduction of carbon footprints without compromising on food security.  In other countries land rights particularly to occupy or use are taken away from traditional users like marginal farmers and cattle grazers and instead transferred to large companies for Jatropha plantation.

Of course local people find jobs in plantation-related activities which in any way will be created irrespective of whether the local people are planters or large corporates. This process of land-grabbing and depeasantisation not only disempowers the local people but also shrinks their traditional sources of livelihood.

In Mexico for example farmers were given subsidies so that they could switch land use from growing traditional crops to Jatropha. In some areas large estates cleared secondary forest land for Jatropha plantation which would have adverse environmental consequences and could also become a cause for concern.

Even in Brazil where the ethanol project for running vehicle was the most successful business the military Government over there played a major role in coercing the farmers to transfer their lands at nominal prices to the corporates for farming sugar cane. State coercion  thus helped the corporates in acquiring and consolidating millions of hectares of land for growing sugarcane.

The Government’s push for the biodiesel programme must be treated as a major innovation and deserves to be implemented more vigorously. The success of this programme will not only help meet energy targets but also help the country fulfill the global commitment to reduce greenhouse gas (GHG) emissions. Besides it will also help save foreign exchange reserves and create employment and entrepreneurial opportunities for millions of poor thereby bringing equity and social justice.

By fixing the biodiesel blending target the State will create a demand for biodiesel which will in turn create demand for entrepreneurs. Similarly by making available land and technology including higher yielding plant varieties and low cost transesterification machineries it will facilitate the supply of entrepreneurs.

The entire biodiesel supply chain has tremendous job potential. To be specific biodiesel production involves four distinct stages namely (i) cultivation of oilseeds bearing plants from which seeds would be harvested; (ii) trading of seeds which involve procurement of seeds from the individual farmers and selling the seeds to the processing factories; (iii) oil extraction from the seeds and transforming the extracted oil to biodiesel through the process of transesterification; and (iv) blending this biodiesel with the petrodiesel and its disposal to individual consumer through retail outlet.

This however does not include people engaged in research and development in various laboratories for the development of appropriate plant varieties as well as those involved in extension work. In the Indian context the nature of entrepreneurship differs at various stages. As a result job creation varies across different stages.

At the feedstock cultivation stage feedstock would be grown in wasteland forestland and surplus land. Marginal small farmers and landless labourers who have wastelands in possession would be  planters and thus the size of plantation would also be small.

These self-employed entrepreneurs would employ family members including women. Given the small size of the holdings the number of entrepreneurs that would be involved in the plantation would depend on the total available/allotted area for this purpose. The small size of entrepreneurship at this stage implies maximum job potential if India is to meet its announced blending target.

In the next stage namely seed  trading) landless people who fail to get access to a wasteland for plantation would be involved in trading seeds. They would purchase seeds from the planters in villages and sell them to the oil extraction plant in the neighbouring urban areas. Like the planters seed traders would also operate at a small scale. Their number would depend on the required frequency of visits to a planter per year — capacity of a trader to visit number of different planters for collecting seeds and their disposal to oil extracting plant usually located in the nearby urban areas.

In oil extraction and biodiesel production which is basically a manufacturing activity a minimum scale of operation is essential for financial viability. Available plant size data indicates wide variation in size — ranging from 100 litre per day in Kochi (Kochi Refineries Ltd) to 5000-10000 tonne per day in Chiplun Pune (Mint Biofuels Ltd). It is obvious that large plants would be suitable where farming is more concentrated as it would enable economies scale up.

On the other hand where farming is scattered which is the case in most of the feedstock growing areas relatively smaller plants would be appropriate.

Thus the manufacturing of biodiesel from seeds also creates substantial opportunities for the development of sustainable entrepreneurship.

Entrepreneurs in the final stage viz blending biodiesel with the petrodiesel and its disposal are the existing oil marketing companies. The scope for additional entrepreneurship or employment generation is low here since they will use the existing channels of the oil marketing companies.

What is the possible realm of job creation in this sector? Of course it will depend on several factors such as target level of blending (five per cent 10 per cent or 20 per cent); oil content of seed; average size of land at the cultivation stage; average number of entrepreneur at seed marketing stage and their marketing area and average size of processing plant.

Thus it is clear that back-of-the-envelope calculation also depends on various factors. We have attempted to estimate the same based on our previous estimates from field surveys. Our back-of-the-envelope calculation suggests that a very conservative estimate of meeting only five per cent blending of biodiesel would generate 1.59 million sustainable entrepreneurs of which 1.58 million would be engaged in plantation 8.46 thousand would be in trading and another 2.49 thousand as small and medium-sized manufacturers in biodiesel manufacturing.

Overall fulfilling this conservative target would generate as much as 46.29 million man-days. It can hence be concluded that the biodiesel programme has enormous potential of sustainable entrepreneurship development meeting all the three objectives of economic growth social equity and environmental sustainability.

The Government must therefore put wholehearted efforts to achieve 20 per cent biodiesel blending targets by 2020 if not before.

(Sanjib Pohit is Senior Fellow National Council of Applied Economic Research and Pradip Biswas is Associate Professor College of Vocational Studies Delhi University)

India though an early mover in the biofuel sector failed to embrace rewards from one of the safest and cleanest of energy sources. To tap this precious resource the Government has to formulate a new strategy

After lying in limbo for a few years concomitant with low oil prices India’s biofuel sector made headlines recently. It all began with Prime Minister Narendra Modi’s announcement on World Biofuel Day on August 10 that the Government aims to develop biofuel economy worth one trillion rupees with state-run oil marketing companies investing Rs 10000 crore for setting up 12 second-generation bio refineries. The Prime Minister also stressed upon the role of biofuels in boosting farm income aiding India’s energy security and creating jobs in a cleaner environment. Subsequently the operation of SpiceJet’s first experimental commercial flight from Dehradun to Delhi that ran on a combination of 25 per cent jet fuel blended with 75 per cent indigenously produced biofuel caught media attention.

All said and done the overall scenario is not too promising. The limitation of feedstock of biofuel limit the blending to about one to three per cent only. While India has given a push for the renewable sector in the Paris Agreement biofuel is not the one that is supposed to be in the driving seat for renewable push. This happened even though India was an early mover in the biofuel sector right after the first oil shock in the 1970s. By contrast countries in Asia Africa and Latin America who entered in this sector much later have achieved a better performance. 

There are several factors behind India’s dismal performance. Since neither the market nor the commodity related to biodiesel existed before the programme was launched the state has to play multiple roles for the emergence and growth of the sector.

First the state has to act as a facilitator for creating necessary infrastructure and provide various supports services or inputs for the producers.

Second it has to act as a regulator defining rules of the game ensuring adequate incentives for all stakeholders to retain long-term interests as is needed for  proper development of the market.

Third it has to act as an active player to not only produce the commodity but also create examples and demonstrations for others particularly private operators. All this requires development of efficient institutions for information communication among various agents to incentivise the farmers and other stakeholders.

Nevertheless these tasks are delicate and time-consuming. The development of the biodiesel sector hinges on how effectively the state performs these tasks and thus helps overcome the main constraints as discussed above. Given the state of progress in this sector it seems that the state has performed poorly in fulfilling these commitments.

A unique aspect of India’s biofuel programme is the use of under-utilised and degraded land to cultivate feedstock for biofuel. Although there are several sources of feedstock for biofuel such as tree-borne oilseeds (TBOs) edible vegetable oil animal fat and algae the Indian Government has emphasised on TBOs in its bio-diesel programme of 2003 and selected jatropha as the predominant plant variety.

Subsequently the Indian Government has allowed the producers to choose any TBOs that suit the local conditions and that will not affect regular crop production. TBOs are planned to be cultivated in the wastelands fallow lands other unused Government lands by roadside and across railway tracks around forestlands and as fencing in farmlands.

Apparently it seems that there is no dearth of wasteland for planting oilseeds bearing trees. But locating the actual land suitable for cultivation is a difficult proposition due to ownership issues. Furthermore many of these lands are being used by poor people for grazing animals or for collecting fuel woods or for minor crops. Bringing Government and communal land into plantation should ensure that the existing users’ livelihood is not snatched and if so alternative mechanism should be developed to satisfy their needs. Of course it would be appropriate to involve them as one of the stakeholders. There are instances of Joint Forest Management Programme where existing land users were not included as members but those with influence in the Panchayat became members. In case of small farmers who are already using their waste/marginal land for some income generation diverting it for plantation purpose must ensure higher income for the future and current level of earning for initial three years. Rural Landless Employment Guarantee Programme (RLEGP) is a good initiative in this direction for current earnings.

To raise confidence and ensure future income of the farmer it needs demonstration from the Government. There is also the need for some agreement of minimum income with progressive incentive for extra production. 

Further research and development for new and high-yielding plant varieties are the most important tasks for the Government not only because these require substantial resources but also due to its positive externalities. The state has made some arrangements for R&D and field trials involving almost all major research institutes and universities of the country for the development of jatropha plants. Based on these initial experiences with jatropha and the infrastructure created researches should be extended to other TBOs focusing on developing locally grown plants. 

In other words it is high time to broaden the biodiesel programme to include every possible TBOs with an emphasis on using and developing local varieties. The newly-approved biofuel policy has taken a right step in this direction. Efficient institutions capable of linking R&D centres to the demonstration of plants to farmers disseminating the right kind of information about cropping practice risk and return as well as designing the right kind of incentives are very much essential for the success of the biodiesel programme. 

Finally multiplicity of value chain organisations need to evolve in biodiesel production. The state is involved either as a part of the value chain or as a catalyst for its formation or both. In a number of these value chain organisations there exists a problem of incentive alignment. 

Since the plantation has substantial gestation lag the yield will be obtained over a long period. No doubt the plantation needs to be taken care of throughout the period primarily by farmers implying there should be adequate incentive and safeguards for them.

Incentive in some form of ownership rights would induce them to take a long-term interest. Buy back agreement is good but that the contracted price should be adjusted when the market price goes up and in any case the price should not fall below the cost of production. For the small farmers a floor price together with incremental price for additional output would provide them incentive to raise their farm productivity. Low yield is one of the major constraints in biofuel. Apart from the high yielding plant development through R&D there is a substantial scope for raising yield through better care and management practices at the farm level and the above mentioned incentives can play a significant role in this regard.

Thus the biofuel ecosystem needs to mature before India can garner the fruits of biofuel sector.

(The writer Dr Sanjib Pohit is Senior Fellow at National Council of Applied Economic Research)

India is in dire need of a long-term national logistics plan that can help minimise gaps reduce costs align developmental projects so we can all reap economic benefits

In today’s world economic climate changes more quickly and countries realise that globalisation has made the world smaller and more competitive. Also customers seek products and services that can respond to their specific needs and firms make effort to create competitive advantages to keep their profit and market share. All of the above trends lead firms and countries to focus on supply chain and integrated logistics. In layman terms logistics basically imply the distribution of products and services from the point of origin to the point of consumption.

Making supply chain activities more effective and efficient is a sustainable competitive advantage for countries. One of the important parts of these activities is logistics activities which can make a significant reduction in costs. Efficient management of logistics activities is a perfect source for creating competitive advantages. Besides it allows firms to respond to their customers’ specific needs which in turn results in customer satisfaction.

In this context it is important to quantify national logistics cost and to identify the sources through which this cost can be reduced so as to increase competitiveness of the nation. Unfortunately estimates of such costs for India based on detailed studies are not readily available. It is generally believed that the cost of logistics is very high in our country. The ball mark figure often quoted in the context of India is about 13 per cent of Gross Domestic Product (GDP) though the methodology of the same is not published anywhere.  Incidentally this is higher than that of US (nine) Europe (10) Japan (11) and Germany (eight).

Inefficiencies have grown over the years from a combination of a non-conducive policy environment extensive industry fragmentation and lack of good basic infrastructure. India’s indirect tax regime discouraged large centralised warehouses and over a period of time led to the fragmentation of the warehousing sector. Extensive disintegration meant the inability of players to develop the industry as a whole and poor support infrastructure such as roads ports and telecom which led to a situation where opportunity to create value is limited.

No doubt high logistics cost reduces competitiveness of Indian goods both in domestic as well as export market. The development of modern logistics is essential for ‘Make in India’ mission and thus would give a boost to both domestic as well as external demand thereby encouraging manufacturing growth and job creation.

However much of this is changing as the Government is now demonstrating a strong commitment towards providing an enabling infrastructure and creating conducive regulations. Recently the logistics sector has been granted infrastructure status which will help it access loans on easier terms. A logistics division has been constituted under the Department of Commerce Ministry of Commerce and Industry to look after the logistics issues. At the same time regulations around rationalisation of tax structures and rollout of the Goods and Services Tax are creating an environment of positive change. Players now have the opportunity to leverage economies of scale complemented with better infrastructure to provide integrated logistics solutions which are cost effective.

Most of the developed countries as well as emerging countries compute performance indicators for logistics activities on a regular basis to measure operational costs and efficiency levels. These indicators provide information on lacunae which needs urgent attention. Measuring operating costs helps identify whether and where to make the changes to control expenses and identify areas for improved performance of assets both at the micro as well at the national level.

Unfortunately similar attempts have not been undertaken for India. In this context we have undertaken a back-of-the-envelope calculation to estimate the logistics costs for our country. Typically the following elements are considered worldwide to estimate logistics costs:

Transportation costs: These include costs for both primary and secondary transportation. Primary transportation is the movement of finished goods from plants and vendors to warehouses. It includes costs for replenishment movement from plants or distribution centers to other plants or distribution centers and inbound freight on purchased finished goods movement to plants or distribution centers for resale.

On the other hand secondary transportation is the delivery of finished goods to customers. It includes payments to carriers pickup allowances truck or rail equipment and operations costs and freight allowed.

Inventory carrying costs: These include the cost of money (opportunity or interest) ad valorem taxes insurance among others.

Management and administration cost of distribution: These include indirect management personnel and support staff including the central distribution staff inventory planning and analysis staff and the traffic department. Nowadays computer software and hardware cost allocations are an important distribution expense.

Ideally estimates of logistics cost are computed from primary as well as secondary data sources. The National Accounts Statistics and input-output tables provide limited information on some of the elements of the logistics costs. Below we provide a tentative estimate of logistics cost using a secondary source of information.

As noted earlier there are three principal components of logistics costs namely transportations costs inventory carrying costs and administration costs of distribution. Out of these one can derive an estimate of the transportation cost from India’s input-output (IO) table. The input-output table of a country provides the cost structure of each sector of the economy by the principal inputs (goods and services) value added (returns to factors of production) and indirect taxes paid to the Government. Since transportation is a principal input in the production process IO table typically provides estimates of such costs.

To some extent the second component of logistics cost (inventory carrying cost) is also documented in the IO table. However the last component of logistics cost is subsumed in other inputs. As a result it is difficult to arrive at the estimate the logistics costs from IO table. In Table 1 we have shown our estimate of logistics cost (primarily first two components) from the latest published IO table of India which refers to the year 2007-08. Our estimate comes to about 8.9 per cent of Gross Domestic Product (GDP).

It may be noted this is a crude estimate of logistics cost in the production process and excludes the logistics cost of delivery from the points of production to the final demand. It must be mentioned that neither the inventory carrying cost nor the management and administration cost is fully accounted for here.

The insurance cost shown in the Table is an overestimate as it reflects total insurance cost and not specific to logistic activities. Our estimated transport cost (7.4 per cent) is on the higher side compared to that of South Africa (6.8 per cent) or Brazil (6.3 per cent) in 2010. The management and administration component of logistics cost is about two per cent in South Africa. If we assume the rate to be of the same magnitude in India our estimate of logistics cost as per cent of GDP turns to be near 11 per cent of GDP. This is a back of envelope estimates and dated sometime back.

Like other countries there is urgent need to track national logistics cost to increase the competitiveness of India.

(The writers Dr Sanjib Pohit and Dr Rajesh Chadha are Senior Fellows at NCAER)