India now consumes billions of litres of ethanol annually to blend into its petrol supply. But where does all this ethanol come from? Who produces it, from what crops, and at what cost? This article traces the ethanol supply chain behind E20 — from the field to the fuel pump — and examines the economic and agricultural realities of India’s ethanol programme.
The feedstocks: what ethanol is made from
India produces fuel-grade ethanol from several agricultural feedstocks, each with different costs, yields, and supply dynamics:
Sugarcane-based ethanol
Historically, India’s ethanol programme was built on the sugar industry. Ethanol is produced from sugarcane juice, B-heavy molasses, and C-heavy molasses. Sugar mills diversified into ethanol production, supported by government incentives.
However, sugarcane ethanol has limitations: it depends on sugarcane harvests (which vary by monsoon), it competes with sugar production for food, and it is geographically concentrated in states like Maharashtra, Uttar Pradesh, and Karnataka.
Grain-based ethanol (maize and rice)
To meet the expanded E20 demand, the government approved maize (corn) and damaged/broken rice as ethanol feedstocks. Grain-based ethanol now accounts for a significant and growing share of production.
The procurement price for maize-based ethanol is approximately ₹71.86 per litre as of 2026. This is higher than the equivalent cost of the petrol it replaces at current crude-oil prices, which is why the government itself has admitted E20 is costlier to produce.
Second-generation (2G) ethanol
2G ethanol is produced from agricultural waste: rice straw, wheat straw, bagasse, cotton stalks, and municipal solid waste. It is the most sustainable feedstock option and avoids the food-vs-fuel trade-off. However, 2G production is commercially nascent in India — only a few pilot plants are operational, and the technology is expensive. 2G ethanol accounts for a negligible share of current supply.
Production capacity and growth
India’s ethanol production capacity has grown rapidly to meet blending targets:
| Year | Blending achieved | Ethanol supplied (approx.) |
|---|---|---|
| 2013–14 | 1.5% | ~38 crore litres |
| 2019–20 | 5% | ~173 crore litres |
| 2023–24 | ~12% | ~500 crore litres |
| 2025–26 | 20% (mandatory) | ~700–800 crore litres (estimated) |
This growth has been driven by government policy: guaranteed procurement by oil marketing companies (OMCs), administered pricing, subsidised loans for distillery expansion, and tax incentives for ethanol producers.
Who produces India’s ethanol?
The ethanol production landscape includes:
- Sugar mills with distilleries: Large sugar companies in Maharashtra, UP, and Karnataka that have added distillery capacity. This was the original backbone of the programme.
- Standalone grain-based distilleries: Newer entrants that process maize and broken rice. These have expanded rapidly in states like Madhya Pradesh, Bihar, and Rajasthan.
- Small and medium enterprises: Hundreds of smaller distillery units that have sprung up across rural India, attracted by guaranteed government procurement.
The financial returns have been extraordinary for early movers. Companies in the ethanol space have seen revenue growth of 10x to 30x in under a decade. The publicly traded ethanol company whose stock surged by 2,184 percent — linked to allegations of conflict of interest, which have been denied — illustrates the scale of wealth created in this sector.
The food-vs-fuel debate
Diverting food crops to fuel production is one of the most debated aspects of ethanol policy worldwide. In India, the concern has specific dimensions:
- Sugarcane diversion: India periodically faces sugar shortages. In some years, the government has restricted sugar exports. Diverting sugarcane to ethanol reduces the sugar available for domestic consumption.
- Grain diversion: Using maize and broken rice for fuel means those grains are not available as animal feed (maize) or in the public distribution system (rice). In a country where food security remains a concern, this trade-off is not trivial.
- Water consumption: Sugarcane is one of the most water-intensive crops grown in India. Expanding sugarcane acreage for ethanol in water-stressed states raises sustainability questions.
- The counter-argument: The government argues that ethanol production creates demand for agricultural produce, supports farmer incomes, and reduces dependence on imported crude oil. These benefits are real, but they do not eliminate the food-vs-fuel trade-off — they sit alongside it.
The procurement mechanism
Ethanol procurement for fuel blending in India works through a government-administered system:
- OMCs tender for ethanol: Indian Oil, Bharat Petroleum, and Hindustan Petroleum issue tenders inviting ethanol producers to supply.
- Administered pricing: The government sets procurement prices differentiated by feedstock (sugarcane juice, B-heavy molasses, C-heavy molasses, maize, damaged rice, etc.). These are not market prices — they are set by policy.
- Guaranteed offtake: OMCs are obligated to procure the ethanol. Producers have a guaranteed buyer at a known price.
- Government support: Distillery projects receive soft loans, interest subventions, and expedited environmental clearances under the ethanol blending programme.
This structure means ethanol production in India is a government-created market with guaranteed returns. The risk is borne by the public (through fuel prices, taxes, and mileage loss), while the returns accrue to producers.
Environmental impact
The government positions ethanol blending as a green policy that reduces carbon emissions. The reality is more nuanced:
- Tailpipe emissions: E20 produces marginally lower CO2 per litre burned, but since vehicles need more litres for the same distance, the net CO2 reduction per kilometre is smaller than the per-litre figure suggests.
- Lifecycle emissions: Growing, harvesting, transporting, and distilling crops into ethanol produces its own carbon footprint. Full lifecycle analyses of Indian ethanol (accounting for fertiliser use, diesel tractors, distillery energy, and transportation) are sparse.
- Water and land use: The water footprint of sugarcane-based ethanol and the land diverted from food production are environmental costs not captured in the “green fuel” narrative.
India’s ethanol programme has created a massive, government-backed industry in under a decade. The supply chain stretches from sugarcane fields and grain markets to hundreds of distilleries and every fuel pump in the country. The economics work for producers. The question is whether they work for the vehicle owners who have no choice but to buy the blended product.