India’s programme to blend ethanol with petrol, initially designed to help sugarcane farmers, is now largely powered by grains like maize and rice. This shift has attracted significant investment and changed the landscape of ethanol manufacturing.
The Ethanol Blending Programme (EBP) began with a clear goal: to support sugar mills by creating an extra income source from sugarcane processing. For years, mills used only a byproduct of sugarcane called ‘C-heavy molasses’. However, from the 2018-19 season, the government encouraged mills to use ‘B-heavy molasses’ and even direct sugarcane juice. This was done by offering higher prices for ethanol made through these routes. As a result, ethanol supply to oil companies jumped from 38 crore litres in 2013-14 to nearly 189 crore litres by 2018-19. The percentage of ethanol blended in petrol also increased from 1.6% to over 4.9%.
Beyond sugar, the government also introduced prices for ethanol made from grains like rice, maize, and damaged foodgrains starting from 2018-19. This allowed many sugar mills to install ‘multi-feedstock distilleries’. These plants could use molasses during the sugarcane crushing season (November to April) and switch to grains during the rest of the year. Ethanol production involves fermenting sugars. Grains contain starch, which needs to be broken down into simple sugars first before fermentation and distillation. The attractive prices for grain-based ethanol led to the quick establishment of dedicated grain-only distilleries in several states.
In the 2023-24 supply year, oil marketing companies procured 672.49 crore litres of ethanol. A significant part, 40.2% (270.27 crore litres), came from sugarcane. However, the majority, 402.22 crore litres, was produced from grains, with maize alone contributing a substantial 286.47 crore litres. This shows that maize produced more ethanol than all sugarcane-based sources combined.
This trend continues in the current supply year. Out of an estimated 920 crore litres, less than a third is expected from sugarcane, while the remaining 620 crore litres will come from grains, with maize expected to supply around 420 crore litres.
Two main factors explain why grains have become the primary source for ethanol. Firstly, poor sugarcane yields due to droughts in recent years (2023-24 and 2024-25) led the government to limit the use of sugarcane juice and B-heavy molasses for ethanol. This reduced the amount of sugar diverted for fuel. Secondly, pricing has played a crucial role. For the 2024-25 supply year, the price for ethanol from maize was set at Rs 71.86 per litre, which was higher than the prices for ethanol from most sugarcane byproducts. This made grain-based ethanol more profitable for manufacturers.
What started as a programme to benefit the sugar industry has, in effect, become more advantageous for grain-based ethanol producers, especially those using maize.
Looking ahead to the 2025-26 supply year, oil companies aim to procure 1,050 crore litres of ethanol, targeting an average blending rate of 20%. Distilleries have offered a much larger quantity, with grain-based ethanol making up the bulk of the offers. Maize remains the leading grain source.
This situation presents a couple of policy challenges. Firstly, India has built a large ethanol production capacity, with around 499 distilleries investing about Rs 40,000 crore and creating an annual capacity of 1,822 crore litres. There are also technical limits to how much more ethanol can be blended into petrol.
Secondly, there is the ongoing debate about ‘fuel versus food’. While the ethanol programme has boosted demand for maize, which is also a key ingredient in poultry and livestock feed, the large quantities used for fuel raise questions about sustainability. Using over 11 million tonnes of maize for ethanol production in 2024-25, given India’s total production of about 42 million tonnes and rising demand for animal feed, presents a challenge.
The use of rice for ethanol also depends on the availability of surplus stocks from the Food Corporation of India, which may not always be the case. The ‘fuel versus food’ dilemma seems less pressing for sugar, as domestic consumption is not growing as rapidly, leaving more surplus for biofuel production.
Harish Damodaran, National Rural Affairs & Agriculture Editor at The Indian Express, has over 33 years of experience reporting on agri-business and economic policy.