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India promotes the production of biodiesel from tree-borne oilseeds. This is seen as an option for substituting fossil fuels, reducing CO2 emissions, afforesting wastelands, and generating rural employment. Critics, however, claim that it may lead to food scarcity and seizure of common lands by corporate investors. This report shows that biodiesel production in India has mainly positive effects. As it is promoted on the basis of non-edible oil seeds on marginal lands, the risks of driving up prices for edible oil or crowding out food production are relatively low. However, the actual development effects may vary greatly, depending on how value chains are organized. This study identifies 13 different ways of organizing biodiesel value chains, ranging from cultivation on large plantations to contract farming, smallholder production for rural electrification, and social forestry projects – each of them having different effects on income generation, participation and empowerment, food security, natural resources management, and climate change. To date, biodiesel production is not a lucrative business, except for some niche markets. This may change in the future, depending on fossil fuel prices, government pricing policies, and agricultural yields. The study describes and assesses a range of federal and state policies aimed at enhancing the economic viability of biodiesel production and ensuring positive development effects.

"This study aims to contribute to knowledge about biodiesel in India and to inform policy-makers about development impacts and appropriate policy choices. Its focus is on the potentials and risks for rural development. The study starts with an overall assessment of the economic viability of biodiesel. To date, biodiesel production is not a lucrative business, except for some niche markets. However, this may change in the future, depending on fossil fuel prices, government pricing policies, and progress on agricultural yields. Furthermore, the study contributes two novel aspects to the discussion on the Indian biodiesel sector: 1. It takes stock of the variety of existing ways of organising the value chain in India and assesses their pros and cons from a comprehensive development perspective; 2. It identifies, describes and assesses the appropriateness of a broad range of federal and state policies and support programmes. Given the diversity of value chain organization, many different policies are taken into account. Whether a state government chooses for example to promote social forestry, large-scale leasing contracts with corporations, or contract farming, and how effectively these policies are implemented, has a bearing on the development outcomes." (author's abstract)