The possibility of increasing the purchase price of ethanol produced from sugarcane seems quite likely, especially in light of the current pressures and political considerations in Maharashtra. Here’s a breakdown of the situation and factors that could lead to such a price increase:

1. Political Pressure and Timing

• Election Context: The timing of the potential announcement—just before the Maharashtra Assembly elections—suggests that the central government may want to avoid any negative impact on sugarcane farmers and millers. Any delay in crushing, due to lower ethanol prices, could exacerbate the challenges faced by farmers, potentially creating unrest ahead of elections.
• Government's Incentive: Given the political context, the government would likely want to address this concern swiftly to avoid any backlash, making it more probable that the purchase price of ethanol will be increased before the elections.

2. Current Market Dynamics

• Ethanol Production and Sugarcane Use: Ethanol production from sugarcane has gained significance due to the government's push for blending ethanol with petrol to reduce dependence on crude oil imports. With sugarcane and its byproducts (such as B-heavy molasses and sugarcane juice) being used more flexibly for ethanol production, there is an increased demand from the sugar mills and distillers for better prices to cover rising input costs.
• Price Increase Demand: The sugar millers have highlighted the gap between the increasing cost of production (especially with rising FRP for sugarcane) and the stagnant price at which ethanol is bought by Oil Marketing Companies (OMCs). They are requesting an increase of up to Rs 3 per liter of ethanol to make it economically viable to increase crushing operations and production.

3. Impact on Farmers and the Ethanol Market

• Farmers' Concerns: Delays in crushing can lead to significant losses for farmers, especially if there is a backlog in harvesting. Sugar millers play a critical role in the timely processing of sugarcane, and if they delay the start of crushing, it could affect the price farmers receive for their produce.
• Ethyl Alcohol Market Dynamics: The market for ethanol is influenced by both domestic and international factors, including the government's renewable energy policies, global demand for ethanol, and internal factors like the availability of molasses. Ethanol's price stability is essential to ensure that sugarcane farmers are incentivized to grow the crop, which impacts both sugar production and the ethanol supply chain.

4. Potential Government Response

• Ethanol Purchase Price: The government's recent decision to allow the use of sugarcane juice and B-heavy molasses for ethanol production can be seen as an effort to incentivize more ethanol production. An increase in the purchase price would make it more attractive for sugar millers to ramp up production, which would benefit both farmers and the overall ethanol market.
• Sugar MSP Concerns: The demand from the industry to raise the Minimum Selling Price (MSP) of sugar is another factor, although the government has so far postponed action on this. However, raising the ethanol purchase price would offer some relief to the sugar mills, even if the sugar MSP remains unchanged for now.

Conclusion:

Given the current situation, including the upcoming elections, the demand from the sugar mills for a price increase, and the broader implications for sugarcane farmers, it seems highly probable that the central government will approve an increase in the ethanol purchase price in the coming days, likely in the range of Rs 2-3 per liter. This move would align with the government's broader objectives of supporting the ethanol blending program and mitigating farmer distress, particularly in a politically sensitive region like Maharashtra.