India to Re‑evaluate Ethanol Blending, Push for Second‑Generation Fuel

⚡ Key Financial Takeaways

India achieved a 20% ethanol blend (E20) in 2025‑26, five years early.

ICRIER suggests temporarily lowering the blend to E15 when ethanol supply is low or food prices rise.

The brief calls for a long‑term shift to second‑generation ethanol from agricultural residues.

Maize, rice and sugarcane currently supply 35.96%, 24.64% and the rest of India’s ethanol, but production growth lags behind demand.

Import flexibility and variable feedstock procurement are recommended to balance supply and food security.

💡 Why It Matters

India’s rapid expansion of ethanol blending risks diverting essential agricultural resources away from food and feed, potentially inflating prices and straining water and land resources. By introducing blend flexibility and moving toward second‑generation ethanol, the country can sustain its fuel goals while safeguarding food security and environmental sustainability.

India’s Ethanol Blending Strategy Under Review India’s ethanol programme has grown rapidly, reaching the 20 % blending target (E20) in the 2025‑26 supply year—five years ahead of the original schedule. The government has earmarked Rs 2.81 lakh crore for gross budgetary support this fiscal year, a 10 % rise from the previous year.

Balancing Food Security and Fuel Demand The policy brief by the Indian Council for Research on International Economic Relations (ICRIER) warns that the current feedstock mix—maize (35.96 %), rice (24.64 %) and sugarcane—could increasingly compete with food, livestock feed and other agricultural uses. Production growth of these crops has been modest: maize rose at 11.4 % per annum, rice at 4.4 % and sugarcane at 5.1 % between 2019‑20 and 2025‑26.

The Case for Second‑Generation Ethanol ICRIER argues that India should eventually move to second‑generation (2G) ethanol, produced from agricultural residues and lignocellulosic biomass. While India has ample residues, commercial viability is hampered by costs of collection, transport, storage, pre‑treatment and biorefinery set‑up. Nevertheless, 2G ethanol would reduce pressure on arable land, water and food supplies.

Short‑Term Flexibility Measures The brief recommends: - Blend Adjustment: Lower the blend to E15 in years of supply shortfall or when maintaining E20 would disproportionately raise food and feed prices. - Feedstock Variation: Use sugar when stocks are abundant to support mills; reduce sugar‑based procurement when stocks fall and shift to other sources. - Rice as Residual: Treat FCI rice largely as a residual feedstock, only when government stocks exceed food‑security needs. - Import Flexibility: Allow greater imports during shortages. In 2025‑26, imported denatured ethanol cost about Rs 60.24 per litre CIF, rising to Rs 63.55 after duties, while domestic procurement prices ranged from Rs 57.97 to Rs 71.86 per litre.

Implications for the Economy Adopting these measures could mitigate the risk of ethanol demand outpacing crop supply, thereby protecting food prices and ensuring a more sustainable fuel supply chain. It also aligns India’s ethanol policy with global trends toward 2G biofuels.

What to Watch - Upcoming policy announcements on blend flexibility and 2G ethanol incentives. - Government decisions on import tariffs and procurement rules. - Progress in biorefinery development and cost reductions for 2G ethanol.

Conclusion ICRIER’s brief underscores the need for a balanced approach: keep the long‑term E20 target, but add flexibility to avoid food‑feed competition and accelerate the transition to a more sustainable second‑generation ethanol supply.

🏛️ Background & Context

India’s ethanol programme was launched to reduce petroleum imports and promote renewable fuels. The 20 % blend target was originally slated for 2030 but was achieved in 2025‑26. The policy brief reflects growing concerns about the sustainability of relying on food‑based feedstocks for biofuel production.