As India raced to produce more ethanol to meet the 20% ethanol-blending (E20) target, the government encouraged distilleries, banks financed new plants, oil marketing companies signed long-term purchase agreements, and investors poured thousands of crores into expanding capacity to manufacture ethanol. The strategy helped the Centre achieve its E20 target five years ahead of the 2030 deadline. That might have sparked a new problem. It’s not the one to do with vehicular wear and tear, mileage drops, environmental concerns or related to food security. It has to do with the problem of plenty.
While the government has mandated the sale of petrol blended with 20% ethanol, there seems to be a demand-supply mismatch. Industry bodies are talking about surplus capacity and India is looking at exporting ethanol.
According to the All India Distillers’ Association (AIDA), India currently has around 370 operational distilleries, with another 40 distilleries in the pipeline.
The industry has nearly 2,000 crore litres of installed ethanol capacity, and against the current procurement requirement for the Ethanol Blended Petrol (EBP) Programme and other industrial uses, it has a “notional surplus capacity of approximately 700 crore litres”, AIDA told India Today Digital.
For blending with petrol, India uses 1,200 crore litres of ethanol a year, according to a report in The Economic Times.
Does that mean India is producing or going to produce more ethanol than it needs, and if so, what happens next? And if ethanol plants don’t produce at their installed capacity, can they repay the capital invested?
The answer is more nuanced than it appears. India does not have tanks overflowing with unsold ethanol. But, it has sprinted to build manufacturing capacity that is now larger than today’s demand. The key question is how will India utilise the ethanol-manufacturing capacity it has created? Certainly not by just forcing E20 or even higher ethanol blends. That’s because you need vehicles compatible with higher ethanol blends to switch to those fuels. Brazil, whose example Union ministers often cite, took decades to implement its flex-fuel programme.
Remember there are bank loans involved. Even if the factories don’t produce anything, the repayment clock would be ticking.
According to the Ministry of Petroleum and Natural Gas, reverting to E10 would jeopardise investments of nearly Rs 1 lakh crore per year in ethanol production and allied infrastructure financed by public sector banks.
This raises several questions. Some basic. Some complex. Let’s start with what’s ethanol? Why did India push so aggressively for blending? Has the country really achieved its targets? Where is the surplus coming from? Is the problem one of production or demand? Could higher ethanol blends become the next policy push? And what does all this mean for motorists, farmers and the biofuel industry of India?
Operational distilleries are also spread across states such as Telangana, Rajasthan, Chhattisgarh, Odisha, Uttarakhand, Assam, Jharkhand and West Bengal, while several northeastern states and Union Territories do not have ethanol production facilities. (Image: Authors)
1. WHAT IS ETHANOL, AND WHY IS IT MIXED WITH PETROL?
Ethanol is an alcohol produced by fermenting agricultural feedstocks such as sugarcane molasses (sheera), maize, rice, wheat, damaged food grains and other biomass. After fermentation and distillation, it is processed into fuel-grade ethanol that meets strict quality specifications before being blended with petrol.
India uses ethanol under its Ethanol Blended Petrol (EBP) Programme, where petrol sold at fuel stations contains a fixed percentage of ethanol by volume. Today, the standard blend is E20. That’s 20% ethanol and 80% petrol.
So, every litre of domestically produced ethanol blended into petrol reduces dependence on imported crude oil while creating an additional market for agricultural produce, says the government.
2. WHEN DID INDIA’S ETHANOL JOURNEY BEGIN?
India’s ethanol blending programme began in 2001 with pilot projects involving 5% blending in some selected states. Progress remained slow for years because of limited production, inconsistent feedstock availability and policy uncertainty.
The programme gained momentum in the last decade after successive policy interventions under the National Policy on Biofuels and expanded procurement by public sector Oil Marketing Companies (OMCs). India achieved 10% ethanol blending in petrol in June 2022.
The government subsequently advanced its 20% blending target from 2030 to Ethanol Supply Year (ESY) 2025-26 and achieved the target five years earlier than planned, according to the Ministry of Petroleum and Natural Gas.
ESY is basically the short-form for Ethanol Supply Year, which in India runs from November to October of the following year.
Brazil pioneered large-scale ethanol blending in petrol in the 1970s.
3. WHY IS THE GOVERNMENT PUSHING ETHANOL SO AGGRESSIVELY?
The government said that its objectives were not just restricted to just promoting having cleaner fuel.
India imports around 88.5% of the crude oil it consumes, making energy security a major policy concern. Replacing part of petrol consumption with domestically produced ethanol helps reduce exposure to volatile global oil markets, according to the Centre.
According to the government’s factsheet released on July 5, the programme has resulted in Rs 1.90 lakh crore in foreign exchange savings since ESY 2014-15, substituted 310 lakh metric tonnes of crude oil, reduced approximately 930 lakh metric tonnes of carbon dioxide emissions, and generated Rs 1.60 lakh crore in additional farmer earnings.
It has also become an important income source for sugarcane growers and increasingly for grain producers, says the Centre.
4. HOW MUCH HAS INDIA’S ETHANOL INDUSTRY EXPANDED?
The scale of expansion of ethanol manufacturing and blending has been really fast. The government says ethanol blending in petrol rose from less than 1.5% in 2013-14 to 20% in 2025-26. Procurement increased from around 38 crore litres in ESY 2013-14 to a projected 1,200 crore litres in ESY 2025-26, according to a PIB Backgrounder issued on July 5.
India’s production capacity has grown even faster. According to the July 5 document, installed capacity expanded from about 421 crore litres in 2014 to nearly 2,000 crore litres by 2026.
That expansion required large investments in greenfield (new) and brownfield (existing) distilleries, storage infrastructure and logistics across India.
India’s ethanol production capacity expanded nearly fivefold between 2014 and 2026.
5. SO WHERE DOES THE TALK OF AN “ETHANOL GLUT” COME FROM?
Amid complaints that E20 is reducing mileage and damaging vehicles, and the scrutiny, many, including industry experts, have called the situation an ethanol glut. India has built more ethanol production capacity than its current domestic demand requires. India is now the third-largest ethanol producer in the world after the US and Brazil.
The All India Distillers’ Association (AIDA) told India Today Digital that India currently has around 370 operational distilleries, while another 40 are under development.
According to AIDA, installed ethanol production capacity is now nearly 2,000 crore litres. Against current requirements for the EBP Programme and industrial consumption (in liquor, pharma, chemicals, etc.), the association estimates a “notional surplus capacity of approximately 700 crore litres”.
In other words, India can produce substantially more ethanol than it currently consumes. What happens to the surplus, then?
According to a report in The Economic Times, the AIDA said that the industry was exploring ethanol exports to countries such as Nepal, Bangladesh and Indonesia, all of which have adopted or are moving towards 10% ethanol blending but lack adequate feedstock and distillation capacity.
According to AIDA Deputy Director General Bharti Balaji, exporting surplus ethanol would help utilise excess production capacity until domestic demand caught up, according to the report published on July 14.
6. DOES THAT MEAN INDIA HAS EXCESS ETHANOL LYING UNUSED? WILL THAT HIT INVESTMENTS?
Not exactly. The industry’s concern is about a scenario of an idle production patch, rather than unsold ethanol inventories right now.
Building a distillery involves investments running into tens or even hundreds of crores. According to the publicly funded New Delhi-based think tank, the Institute for Industrial Development, a commercially viable 30 KLPD ethanol plant could cost Rs 55-60 crore, while larger facilities might require investments of Rs 150-300 crore or more.
KLPD stands for Kilo Litres Per Day. It is the standard unit used to describe the daily production capacity of a distillery.
So, such huge capital investments would expect sustained demand and production over many years. If demand grows slower than the capacity to supply, plants would have to operate below optimum levels. That would affect their profitability, hit finances and the ability to repay the capital to money-lending financial institutions like banks.
7. HAS ETHANOL DEMAND PLATEAUED IN INDIA?
Ethanol demand might have plateaued for now, but it is expected to grow multifold with more flex-fuel compatible vehicles being sold in line with the increase in population. The ethanol demand has just reached an important milestone ahead of its target. And, the Ministry of Petroleum and Natural Gas in March 2025 said that it was interested in scaling up “beyond 20%”, like E30.
This might be a part of a broader goal to reduce oil imports, save forex, and cut emissions, but it raises concerns about food security, water use, and land diversion (especially for grain-based ethanol). With 1,200 crore litres a year, India’s principal ethanol consumer remains the EBP Programme. So, scientific studies need to be done to test the efficacy of the higher blends.
The AIDA told India Today Digital that it believed the industry had moved “from a capacity-building phase to a resilience-building phase”.
8. WHAT DOES INDIA’S LATEST ETHANOL SUPPLY DATA SAY?
AIDA’s latest figures suggest supplies remain robust. As of June 2026, distilleries had supplied 717 crore litres of ethanol under the ongoing ESY 2025-26.
They had signed contracts to supply a total of 1,048 crore litres by the end of the supply year. This means about 68% of the contracted ethanol had already been delivered by June, with the remaining supplies scheduled over the rest of the ESY.
Grain-based ethanol accounted for 480 crore litres, or nearly 67% of supplies, while sugarcane-based feedstocks contributed 238 crore litres.
Maize remained the largest single feedstock with 258 crore litres, followed by broken rice from the Food Corporation of India (FCI) at 177 crore litres, sugarcane juice at 144 crore litres, B-heavy molasses at 82 crore litres and damaged food grains at 45 crore litres.
9. WHAT’S THE GRAIN-GAME IN INDIA’S ETHANOL JOURNEY? HAS INDIA-US TRADE DEAL A ROLE TO PLAY?
India’s ethanol story was once closely linked with sugar mills as they produced the volatile, flammable, and colourless organic compound as one of the many by-products.
But now, grain-based ethanol has become the dominant contributor. According to AIDA, grain-based feedstocks now account for nearly two-thirds of ethanol supplies. The association said diversification has reduced dependence on a single crop while strengthening year-round availability. Using multiple feedstocks also provides flexibility when one crop faces weather or production shocks. What if all the crops fail?
In 2023, erratic monsoon and low sugarcane and rice output forced the Centre to restrict their diversion for ethanol production. A possible El Nino could similarly affect crop output and tighten the stock supply to ethanol plants.
Moreover, expanding ethanol production from sugarcane and food grains comes with trade-offs as they are highly water-intensive.
Months before the row over ethanol blending erupted, India and the US agreed on an interim trade framework under which New Delhi would “eliminate or reduce tariffs” on a range of American farm products, including “dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits”, according to the India-US Joint Statement released by the Ministry of Commerce and Industry in February.
The framework also said that the two countries would address “long-standing non-tariff barriers” affecting trade in US agricultural products, medical devices and ICT goods, while working towards a broader Bilateral Trade Agreement (BTA).
India’s ethanol programme was originally designed to support the sugar industry. UP benefited a lot.
10. WHY DIDN’T THE GOVERNMENT KEEP SELLING E10 ALONGSIDE E20?
Officials say that maintaining multiple petrol grades nationwide would complicate logistics across more than one lakh retail fuel outlets. They would require parallel storage, transport and dispensing infrastructure across the length and breadth of India.
Having already invested heavily in E20 production and distribution, policymakers believe a single national standard is more practical.
The oil ministry said rolling back to E10 wouldn’t be possible because it would end up undermining the nearly Rs 1 lakh crore invested in ethanol plants, storage and logistics infrastructure.
“Over the past several years, public sector banks have financed nearly Rs 1 lakh crore/year of investments in ethanol production and associated infrastructure. Dedicated ethanol plants, distilleries, storage facilities and logistics networks have been created to meet India’s blending targets,” the Centre said in a release on July 10.
The achievement of the E20 target was celebrated by the government as a major milestone. But the before-time ethanol-blended petrol transition has been described as “rushed” by commentators and experts.
It has drawn criticism that the shift was accelerated and left many owners of older vehicles grappling with compatibility and mileage challenges.
So, to conclude, while surplus capacity does not mean the ethanol programme has hit a dead end, a longer transition period with the coexistence of E10 and a gradual replacement of older fleet with flex-fuel vehicles could have made things easier for motorists and ethanol manufacturers alike.
On the positive, rather than struggling to produce enough ethanol in the future, India now has the infrastructure needed to support future growth. But the ethanol glut is surely a challenge for the producers who now have to ensure that they are able to use their production capacity optimally to ensure their investment is viable. So, the responsibility will ultimately shift to the common man to make the ethanol-blended petrol programme a success.
– Ends
Published By:
Sushim Mukul
Published On:
Jul 16, 2026 07:00 IST
