India’s ethanol blending programme—once held up as a model of clean energy transition—is now facing a complex web of domestic bottlenecks and international pressure. After achieving the 20% blending target ahead of the March 2025 deadline, policymakers were expected to raise the bar to 30% by 2030. But those ambitions are now under threat, not just from production constraints, but from Washington’s insistence that India open its market to US ethanol imports as part of an ongoing bilateral trade agreement.
The Indian government finds itself caught in a policy dilemma. Yield to American demands, and the goal of self-reliance in sustainable fuels is jeopardised. Resist, and it risks derailing the broader trade deal, including the long-anticipated bilateral trade agreement (BTA).
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Ethanol as a strategic lever
Ethanol blending has become a key pillar of India’s energy security strategy. By mixing ethanol—produced from sugarcane, maize, and other agricultural feedstocks—with petrol, India has managed to reduce crude oil imports and cut its fuel bill. Over the past decade, this shift has saved the country over Rs 1.2 trillion in foreign exchange and substituted nearly 19.3 million metric tonnes of oil.
But ethanol is not just about energy economics. It also plays into rural prosperity, generating demand for agricultural produce, creating jobs in the hinterland, and aligning with India’s Paris Agreement climate goals. Like Brazil, which successfully scaled ethanol blending to 30% and beyond, India is eyeing higher ratios like E27 and even E100.
American shadow on ethanol ambitions
The US push to export cheaper, corn-based ethanol to India has alarmed domestic producers. Indian farmers—particularly in Maharashtra, Uttar Pradesh, and Karnataka—have invested heavily in cultivating sugarcane and maize to supply distilleries. Opening the market to imports risks undercutting local prices, undermining both farmer incomes and ethanol viability.
Senior government officials have questioned the logic of compromising fuel sovereignty to appease an external partner. The concern is not only economic but strategic: energy self-sufficiency is critical for national resilience.
Capacity constraints and economic viability
Even without US imports, India’s ethanol supply chain is under stress. The current production capacity of 17 billion litres is expected to be maxed out by 2026 due to rising industrial and potable alcohol demand. To sustain E20 blending and aim for E30 by 2030–31, the Indian Sugar Manufacturers Association (ISMA) estimates that an additional 4.75 billion litres will be needed—along with Rs 22,000 crore in fresh investments.
But investor appetite is waning. Shrinking margins—from 12–13% a few years ago to just 1–2% today—are discouraging expansion. Rising feedstock prices and stagnant ethanol procurement rates since 2022–23 have squeezed profitability. Triveni Engineering & Industries, a major player in sugar and ethanol, recently scrapped its proposed distillery in Nangal due to poor returns. Others are equally cautious.
Vehicle makers, too, are reluctant
Automobile manufacturers are proving to be the other bottleneck. The transition to flex-fuel vehicles (FFVs)—capable of running on blends up to E100—is essential for higher ethanol absorption. Yet adoption remains minimal. Carmakers such as Toyota have flagged higher production costs of Rs 50,000–1 lakh per car and around Rs 25,000 for two-wheelers due to the need for corrosion-resistant parts and advanced sensors. To make matters worse, FFVs are taxed on par with petrol vehicles, despite their greener profile.
According to the oil ministry, the lack of FFVs is one of the biggest hurdles to scaling up ethanol use. Consumers, too, face disincentives. Ethanol has a lower energy density, leading to a 7% drop in mileage at E20 and up to 30% at E100—making the switch less attractive.
Time for corrective measures
To stay on track, the government must recalibrate its ethanol roadmap. This begins with revising procurement prices annually to reflect rising feedstock costs. Targeted tax breaks or capital subsidies can help revive investor interest in building new distilleries, especially those using diverse inputs like maize, molasses, or even agricultural waste.
It must also act to insulate domestic producers from cheap US ethanol, which could flood the market and undo a decade of local capacity-building. Trade negotiations should uphold India’s right to prioritise clean energy self-sufficiency.
Additionally, policymakers should explore blending ethanol not just with petrol but also with diesel. Currently limited to 2–3%, diesel blending could be the next frontier, provided adequate technological and regulatory support is extended.
Balancing food and fuel security
There is also the deeper concern of environmental sustainability. Sugarcane, the backbone of India’s ethanol economy, is a water-intensive crop. Its increasing diversion for fuel production is contributing to groundwater stress and driving up retail sugar prices. States like Maharashtra and Uttar Pradesh—already facing water scarcity—may bear the brunt of this pressure. As Policy Circle previously noted, the line between food and fuel security is becoming dangerously thin.
India’s ethanol journey—from E5 to E20—has been swift. But the road to E30 and beyond is proving to be more complex. Rising geopolitical tensions, fraught economics, and environmental concerns are converging at a critical juncture. Whether India can safeguard its long-term interests while fending off short-term pressures will define the next chapter of its clean energy transition.