On Episode 902 of The Core Report, financial journalist Govindraj Ethiraj talks to Bharati Balaji, Deputy Director General at the All India Distillers' Association (AIDA) as well as Sourav Mitra, Partner – Oil & Gas at Grant Thornton Bharat.

SHOW NOTES

(00:00) Stories of the Day

(01:00) Oil Prices Hit 3 Month Low As Global, Indian Markets Rise

(04:36) Indian Merchandise Exports Hit A Record High At $42.5 Billion

(06:00) How Will India Be Impacted If The Iran-US Deal Stays

(13:42) Decoding India’s Ethanol Supply Systems As Govt Unveils Fresh Rules For Ethanol Blended Vehicles

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Tuesday, the 16th of June and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we start a quick announcement, I will be on the road for the next three days and attending conferences, so our reports may be a little shortened and intermittent, so please do bear with us.

Our top stories and themes…

Oil prices hit a three-month low as global and Indian markets rise.

Indian merchandise exports hit a record high of $42.5 billion.

How will India be impacted if the Iran-U.S. peace deal plays out?

Decoding India's ethanol supply systems as government unveils fresh rules and incentives for ethanol-blended vehicles.

Markets, Oil, The Rupee and Exports

Oil prices fell to a three-month low on Monday after U.S. President Donald Trump and Iran's Deputy Foreign Minister said they had reached an initial deal to end the war and resume traffic through the state of Hormuz.

Brent crude futures down $4.5 to about $82.86, or under $83 a barrel, on Monday afternoon. Both contracts, that's Brent crude futures and West Texas Intermediate, have fallen to their lowest since March 10 on Monday. So the 14-point plan should see the U.S. and Iran extend their ceasefire agreed to on April 8 by two months and begin the new negotiations about restricting Tehran's enrichment of uranium for around 15 years, according to a Bloomberg report, which added that they can extend the truce further if they can't reach a so-called final agreement in that timeframe, which many analysts expect will be the case given how complex and technical those discussions could be.

Analysts told Reuters that it will take time, however, for oil to approach the pre-crisis level of 20 million barrels per day sailing through this chokepoint, and estimates a full resumption of traffic vary from weeks to months. While still a framework, the deal is the biggest breakthrough towards resolving the conflict that has killed thousands and turned energy markets upside down ever since the war started with the U.S.-Israeli attacks on Iran on the 28th of February. The deal with the Islamic Republic of Iran is now complete, U.S. President Donald Trump wrote on his Truth Social platform on Sunday night, and his post came shortly after Pakistani Prime Minister Shahbaz Sharif, whose country has served as a mediator, announced the deal had been struck.

The Memorandum of Understanding is scheduled to be officially signed on Friday in Switzerland. Meanwhile, leaders of the Group of Seven Wealthy Nations have arrived at a lakeside resort in France, where countries will surely discuss the latest ceasefire. Back home, the Nifty 50 and Sensex were more measured in their rise, not surprisingly, since Friday had already seen a sharp jump in anticipation of this peace deal.

The Nifty 50 was up 231 points to 23,853, and the Sensex was up 736 points to 76,264. Both indices eased back after going up a little more. In the broader markets, the Nifty mid-cap and small-cap indices were up 1.29 and 1.1 percent each.

Now, markets around the region have got boosted with this news. The promise of an end to the conflict has pushed the Philippine stock markets to its rally since March 2020. Indonesian equities extended their rebound, climbing more than 18 percent from their June 8 bottom, according to Bloomberg.

Wall Street saw record highs on Monday morning, with the Dow Jones Industrial Average hitting a new all-time intraday high during the session. SpaceX shares were up 6 percent. Back home, the rupee touched its highest level in five weeks at Rs.

94.46, and finally ending at Rs. 94.71, up 0.4 percent, against the previous lows of Rs. 95.11. So, the currency's year-to-date decline has narrowed to 5.6 percent, according to Reuters, which added that it had struck a record low of Rs.

97.00 last month. Analysts told Reuters that while the news of war ending is a positive development for the rupee, we may not see a rally and the currency could move towards Rs. 93.25 in the near term.

Gold prices have risen now for the third-stage session on Monday, climbing to a near one-week high after the peace deal or the likelihood of it, a move that eased expectations of higher interest rates as well. Spot gold was up to $4,344 per ounce, hitting its highest level since June 9, according to Reuters. Meanwhile, India's merchandise exports have jumped to a record high of $45.2 billion in May thanks to strong petroleum and engineering goods exports and recovery in shipments to West Asia, according to a Business Standard report.

It also quoted India's Commerce Secretary attributing the recovery in exports to West Asia to the efforts of trade missions and export promotion agencies. According to him, the June numbers may also be good as the situation is likely to normalise in West Asia after the peace deal on Monday. Merchandise imports also hit a high of $73.4 billion in May thanks to higher crude oil imports but India's trade deficit has narrowed from the previous month to $28.2 billion in May.

The same figure for May 2025 was $22.5 billion. Meanwhile, wholesale price inflation for May 2026 under the new series with base year of 22-23 is at 9.7%. The new index has differential weights for the three broad categories though the changes are not significant, according to a note from Bank of Baroda Research, which also points out that the rate of inflation has been climbing up even before the war and has now peaked at 9.7%. On the categories, it says primary is up from 22.6 to 22.8. For manufacturing, it's down to 63.1. And for fuel and power, it's up from 13.2 to 14.1. The mineral oil category has been shifted from primary to fuel and power category.

What is the Impact of Iran-US Peace Deal on India?

How will a potential peace deal between Iran and the US weigh on India's economy and its energy dependence? While oil prices are already down, what do oil and gas supplies look like in the near to medium term since there is no real short term here? And when can we expect pump prices to come down, if at all? I reached out to Sourav Mitra, partner Energy, Grant Thornton Bharat and head of the oil and gas practise there and I began by asking him how he was reading the latest developments of the almost four-month-old war.

INTERVIEW TRANSCRIPT

Sourav Mitra: I think signals are very positive, particularly for us as a country. The reason is with this opening of Hormuz, there was a significant quantum of crude and LPG, which was struck there for many months. So that shipping route is something that the imminent issue of having longer crude storage, gas storage, LPG, that is something that could be immediately addressed.

But nonetheless, we need to also factor in one aspect is while the trade might have opened up, there will be still a lot of caution from a lot of transporters and the shippers who will move their product from this line. So you will have something which was not there pre-war as a war premium, the vulnerabilities of those trade will still remain. Hence, while crude prices will come up, these prices, particularly on transportation of crude and gas, that will be a buildup cost to whatever products that India gets.

So that is one. The second positive point, what I could foresee is that the major economies like the Saudis and the UAE, who had a decent sizable production, they have already started an alternate route. I think that is something where the Hormuz dependence will not stay.

So going forward, if such vulnerabilities happen, both these countries from where a major import of crude and LPG happens, so that will be stable. But on a shorter run, we will see that the impact, particularly the supply influx, which was a problem, that will navigate smoothly. But the prices impact on the end, that is something that will take time for government to at least recover what the sustained losses has been.

So this is how we could see that a mixed of positive signal plus a caution also that goes for the oil markets.

Govindraj Ethiraj: Right. And in terms of oil supplies, a lot of oil and gas would have typically come from West Asia, including countries like Qatar and Iran itself. How are you seeing all of that?

And what is the outlook appear for those supplies to come back? Because we also have learned in the past that many of these oil fields were bombed, and a full recovery was some time away. So from that perspective, how does the overall sort of sourcing map look like in the near to medium term?

Sourav Mitra: I think for India, this war has, I think it has taught us multiple lessons. We have really diversified our sourcing inputs. We have started offtake not only from Russia, but Venezuela also, where a major sizable chunk of our crude are coming from there.

While on the front of crude, we are well balanced, particularly taking offtakes from different countries, including Saudi, EU, Venezuela, Russia, and Iraq also. But there will be certain constraints, particularly from the fields which have been bombed, particularly on the side of Kuwait and all the stuff. On the terms of natural gas, yes, Qatar has been bombed.

But luckily for India, the trains from which our long-term contracts were with Qatar, that remains very, very active. So we will not have major disruptions on the LNG coming from Qatar. There have been significant long-term engagements with the US LNG also, that will also help us.

I think these are some of the positive supply in terms of, I think, supply getting at risk. But yes, prices, particularly for LNG, will remain at elevated price, which is compared to the pre-war levels, which will take some time to normalise. That is on the natural gas side, particularly the LNG side.

Govindraj Ethiraj: Right. You said that we've diversified our sourcing and we have a lot of crude, for example, coming from North America and the Americas, rather, including North and South America. What does that mean for prices?

I mean, what would that add to the bill, so to speak, even as crude travels for such or much longer distances?

Sourav Mitra: I think, see, while prices will definitely, you will always have an added price of your transportation coming from any crude which is coming from North America. But the better price is the type of crude that Venezuela has. Very few refineries across the globe have that capacity to refine it, which India has.

Entities like Reliance and a lot other refineries have that capacity. So definitely the prices that Venezuela crude will come will be at a discounted rate compared to the other brand sources. The second part is like, you know, I think this war has really put up a hold on the complete production from UAE and Saudi, which is expected to also open the throttle, given that there have been changes and amendments in the OPEC constitution also, with entities coming out of the OPEC.

So that means that the production of crude will not be so impactful in going forward. And multiple supply ensures that the prices, as you have recently seen, post this ceasefire, the prices really came down to a level of 85. So these are very positive signals.

But yes, it will take some time for the market to go to that level of below $70 is something that may take, I think, at least a quarter or so for prices to remain at that point.

Govindraj Ethiraj: Right. So from an India point of view, we've raised prices at the pump level three times in the month of May, and a lot of people did feel it was delayed. But that apart, how are you seeing the timeframe for, let's say, oil marketing companies to recover and then readjust to, let's say, lower prices, which will eventually benefit consumers?

Sourav Mitra: So I think there will be three point action. Definitely first is given the spot crude or whatever crude that we buy at a lower discounted price will take some time for the Indian refiners to absorb. B, whatever losses the OMCs has made, particularly not only on the fuel, but LPG also, that also will require a significant amount of months to at least recover the losses.

And C, if the prices remain at a level, let us say, between $65 to $70, $75, government may first think of, I think, enhancing its excise duty. So immediately in a span of three months to four months, any price revision on the downside looks difficult for the Indian markets.

Govindraj Ethiraj: Right. Sourav, thank you so much for joining me.

Sourav Mitra: Thanks, Govind. Pleasure talking to you.

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A note from the GTRI says the agreement does bring immediate economic relief. The conflict exposed India's dependence on West Asia, from where it sources roughly 50% of its crude oil imports, 70% of LPG supplies and nearly 90% of LNG imports. The disruption of shipping through the Gulf had raised India's energy import bill, increased inflation risks, weakened the rupee and forced refiners to seek alternative supplies from distant markets.

The GTRI report says reopening the state of Hormuz is expected to stabilise energy markets, ease pressure on oil and gas prices, strengthen the rupee and improve India's growth outlook. Elsewhere, 16 India-bound ships carrying fertiliser are stranded in the state of Hormuz, according to a Joint Secretary in the Fertilisers Ministry in India. Eight ships carrying about 330,000 tonnes of urea, four with 257,000 tonnes of diammonium phosphate or DAP, one with ammonia and three with 110,000 tonnes of sulphur are in the state of Hormuz

What are the new Incentives for Ethanol Fuels in India?

India's Road, Transport and Highways Minister Nitin Gadkari on Saturday announced that India has given full legal recognition to 100% ethanol blended fuel, a move that will allow vehicles to run entirely on ethanol and thus hopefully reduce the country's dependence on fossil fuel imports, according to a report in the Financial Express. The minister said that the approval would enable ethanol to emerge as a viable alternative to petrol, helping India lower its burden of Rs. 22 lakh crore in annual fossil fuel imports.

India is moving towards greater ethanol blends for fuel that's powering two-wheelers and cars. The last week, the government exempted petrol blended with 22 to 30% ethanol from Central Excise Duty Road Infrastructure Cess and other Cesses. No change in fuel prices is expected because of this move alone, at least right now.

Interestingly, India does have surplus ethanol. And while cars and two-wheelers have to change their engines to run on higher ethanol blends, there is no shortage of ethanol in itself. I reached out to Bharati Balaji, the Deputy Director General of the All India Distillers Association, which represents the major manufacturers across ethanol, bioenergy and portable alcohol segments.

And I began by asking her how she was seeing the latest developments from her industry's perspective.

INTERVIEW TRANSCRIPT

Bharati Balaji: So the industry has responded very proactively to the government's ethanol blending roadmap primarily and the policy signals by making substantial investments in new distillation capacities across the country. So as a result, India's installed ethanol production capacity has now surpassed 2,000 crore litres per annum and approximately 1,776 crore litres to be specific of capacity has been created and this capacity is created by around 370 distilleries alone, reflecting the sector's strong commitment to support the national biofuel programme. However, the production capacity has expanded significantly.

Demand growth has not kept pace. So ethanol procurement by OMCs, oil marketing companies, during the year 2025-26 is estimated around 1,100 crore litres. So even after accounting for approximately another 300 crore litres of ethanol supply to other sectors such as alcohol, chemicals, pharmaceuticals, cosmetics and other industrial applications, the industry is still sitting with a surplus capacity of around 600 litres annually.

So if you see this by the numbers, the growing gap between the installed production capacity and a short demand has created a situation where a substantial portion of the industry's assets, they remain underutilised. And given the scale of investments already undertaken, there is an urgent need now to accelerate the role of new ethanol consumption avenues, you know, including that we're talking about E85, E100, flexible vehicles, etc. Right.

Govindraj Ethiraj: And could you give us a split between the ethanol that's going for mobility versus the other areas that you just mentioned?

Bharati Balaji: Yeah. So if it's 2,000 crore litres in total, 1,100 crore litres goes specifically for the fuel, a fuel blended with petrol. And the balance 300 crore litres is used for other industrial applications.

So that would leave us balance of 600 crore litres, which is surplus.

Govindraj Ethiraj: Got it. And the source for this ethanol, I'm assuming a good part is sugar, but what's the breakup like?

Bharati Balaji: So the entire ethanol blended programme started in 2012. It was primarily for the sugar industry. But over the period, what had happened is when the programme started running and governments to make sure the sustainability of the programme expanded the feedstock basket to grains.

The reason being, one sugar is an essential commodity and it's very seasonal. It's a six months crop. So therefore, they expanded to the other feedstock basis, other grains, primarily maize.

From 2014 to current trend has been that the maize has overtaken the other feedstock, sugarcane and rice, etc. And if I have to give you in terms of percentage breakup between the contribution of grains versus the sugar, around 60% of the total ethanol supply today comes from grains and in that primarily around 45% comes from maize. So the balance 40% is your sugarcane based ethanol.

Govindraj Ethiraj: Got it. What's the rough geographic split like in terms of where most of the ethanol is coming from within the country?

Bharati Balaji: Sugar primarily is grown in three large states, that is UP, Maharashtra and Karnataka. That's where the sugarcane crop is largely based on. If you see the maize and the rice production, it is across India, whether it's AP, Telangana, Rajasthan, Karnataka, West Bengal, UP, Bihar.

The grains are spread across India, whereas sugar is focused in three states. And that's where the government encouraged grains to avoid any transportation from one state to another. And also the accessibility of feedstock across the year to have the steady supply of feedstock.

And therefore there was expansion of sugar to other grains.

Govindraj Ethiraj: Right. A quick logistics question. So all the ethanol that's being produced by the 370 distilleries goes to the refineries run by the state-owned companies and where it's blended and then further distributed?

Absolutely right. Right. Okay.

Now let me come to the E22 and E25. So what's your sense on demand given this move and also knowing where we are in terms of, let's say, higher levels of blending or other vehicles which can take higher levels of blended fuels?

Bharati Balaji: First, definitely as an association, All India Distillers Association, we welcome the government's decision to exempt the recent notification on exempting its size duty on E22 to E30 blended petrol. This certainly is a landmark policy intervention and I would say a natural progression of India's ethanol blended journey beyond E20. Along with the recent developments such as standards for E22 to E30 fuels, E85 and E100 notifications, rollout of flex fuels and the introduction of E85, these measures create an enabling ecosystem for the next phase of ethanol growth.

This sort of reflects the government's forward-looking approach and provides the regulatory framework required for the growth, certainly. And as India now progresses towards a higher ethanol blends and flex fuel mobility, ethanol demand could increase significantly over the coming years. So let's say in terms of figures, if I have to say a transition from E20 to E22 blending alone would generate an additional demand of nearly 150 crore litres annually.

Furthermore, if flex fuel vehicles achieve substantial market penetration and account for around 50% of the vehicle fleet by 2030, ethanol demand could increase by an additional 400 to 500 crore litres per annum, creating a strong foundation for future investments and capacity expansion. The industry remains fully prepared to make further investments wherever required. Currently, as you did mention, there are 370 test lorries and 40 more in the pipeline to come.

However, the immediate priority is no longer capacity creation alone. It is the development of a complete ecosystem that can support the higher blend consumption. So this includes your accelerated deployment of FFEs or expansion of retail infrastructure for E85 and E100.

And more important would be consumer awareness initiatives and of course long-term policy certainty. What's FFE? Flex fuel vehicles, sorry.

Govindraj Ethiraj: Flex fuel, okay. I mean, I know that this is not really the industry's concern because finally it's the oil marketing companies or the refiners like IOC and HPCL who are supplying the fuel. But does your industry also conduct research on the efficacy of these fuels when it comes to combustion engines and so on?

Bharati Balaji: So when the entire ethanol blended programme started, of course, the industry did study on the ethanol and compatible vehicles from IIT Delhi itself, which was submitted to the government. And that's when the government took note of it and we started progressing in the programme, certainly. But going forward, we were talking about the base blend of E20 and now we're talking about increasing the blend to 20 to 25 or 30 percent.

85 and 100 percent requires different vehicles altogether. That's again, vehicles which are only compatible with 85 percent of ethanol or 100 percent. That's another story.

But the vehicles currently which has the base blend of E20 percent of ethanol, if it can go up to 25 or 30 percent, is what the industry is demanding currently with the surplus that we're sitting in. We do insist to the government to have some study and certification to see the fuel compatibility with the vehicles. And I believe definitely it's for the government to respond, but I do believe that government is cognisant of this and in fact is getting study done on the vehicle compatibility with the higher blends of the fuels.

And with the indication of this new notification, it looks like this is just a regulatory framework base which has been set and going forward, we will see much more in this area.

Govindraj Ethiraj: Right. So from the industry's point of view, you're saying that industry is confident that these fuels can be as, I mean, for whatever they are, they can be as effective in powering these engines and so on.

Bharati Balaji: Oh, absolutely. Absolutely. We've seen that there's a Brazil success model.

There is US and there is Thailand. US is running on E85 and Brazil is running on E85 and E100. So certainly it's not a new technology that India has to take note of, but of course, considering the alternate vehicles and alternate fuels, alternate technology pathway that we're all considering, there needs to be a proper study and a certification.

Govindraj Ethiraj:

You said 40 more distilleries are coming up. So would you say they're mid-size, small size? Do they become mostly belong to larger conglomerates?

What's the broad split? I mean, I'm somewhat familiar in sugar where we know some of the names have been around for decades and so on. How does it work in the non-sugar space particularly?

Bharati Balaji: I would say mid-size to large size, but I cannot specifically comment on that because that's still with the government in the pipeline for licences and other regulatory frameworks. So I cannot comment on the size of these.

Govindraj Ethiraj: Right. And let's say the last hundred who came up in the last few years, would they be mostly larger companies, part of groups?

Bharati Balaji: It's a combination of, I would say mid-size and a larger conglomerate, larger groups for sure.

Govindraj Ethiraj: So Bharti, if I can supplement that last question, when you look at sources for ethanol production, which is maize that you spoke of, sugar and there are other agri products as well, how is that looking like in terms of availability and as you look ahead for the next few years?

Bharati Balaji: India today has one of the most diversified ethanol feedstock baskets in the world because when we spoke about Brazil particularly, we did see that the success story is primarily on one feedstock, which is sugarcane. Ethanol in India is currently produced from sugarcane juice, B heavy molasses, C heavy molasses, maize, damaged food grains, surplus rice, and other approved feedstocks. Over the past few years, we've seen a significant increase in grain-based ethanol capacities, particularly maize-based, which is expected to play a significant role in the future growth.

We have been consistently advocating feedstock diversification because it enhances supply security and reduces dependence on any single raw material source. In fact, you are well-versed with sugar industry and if you see going back when it was only sugar, government did restrict the ethanol from sugarcane juice due to the availability at that point of time. So therefore, the flexibility of the government to switch the feedstocks and having the multiple feedstock basket itself makes sense to balance the entire economy in the fuel-versus-food.

So going forward, maize is emerging as a key growth driver for ethanol production alongside traditional sugar-based feedstocks. India possesses adequate agricultural potential to support future ethanol demand. In fact, if you see, not only did the centre give out a lot of incentives, various subsidies to the grain-based manufacturers, but also the various states went ahead and supported and promoted the growth of these crops to divert towards ethanol.

But sustained growth will require continued focus on crop productivity, logistics, storage infrastructure and policies that encourage feedstock availability without compromising food security objectives from distiller's perspective. And of course, distillers are optimising yields via advanced fermentation techniques such as very high gravity fermentation, which increases the concentration of ethanol in the mash and drastically lowers water and energy use. So the industry views that energy security and food security can coexist, provided growth is supported throughout productivity enhancement, crop diversification and use of surplus agricultural resources.

And we all know that today we're sitting on surplus in terms of whether it's rice in FCI go downs, which is three times the demand that the country has to the maize particularly, which is across India in a surplus spot.

Govindraj Ethiraj: Got it. Bharti, thank you so much.

Bharati Balaji: Thank you. Thank you. Thank you so much.