India’s ethanol-blended fuels have become an important pillar of the nation’s energy security strategy in recent years. The programme has delivered tangible gains in crude oil substitution, reduced foreign exchange outflows, reduced emissons, and increased payments to farmers, according to the Economic Survey 2025-26.
As of August 2025, ethanol blending has saved India more than 1.44 lakh crore in foreign exchange and facilitated the substitution of about 245 lakh metric tonnes of crude oil. As blending targets rise towards E20, the programme has necessarily expanded beyond traditional sugar-based feedstock to include food grains, particularly maize. While this diversification has enabled rapid scaling, recent evidence suggests that administered ethanol pricing, interacting with underlying technological changes in maize cultivation, is increasingly reshaping agricultural incentives, with implications for crop diversity and food security.
As per survey, Maize’s recent expansion in India reflects both structural productivity and evolving market signals. Data show that the national maize yield increased from approximately 2.56 tonnes per hectare in FY16 to roughly 3.78 tonnes per hectare by FY25. Over the same period, yields for crops such as soybeans, sunflower seeds, rapeseed, peanuts, and millet, among others, have either stagnated or declined. This trend is consistent with broader projections by the OECD-FAO, which attributes global cereal yield growth largely to technological improvements such as improved seed varieties and optimised agronomic practices. These productivity gains make maize a naturally attractive crop for farmers relative to many other cereals and pulses, even in the absence of policy intervention.
However, recent patterns indicate that ethanol pricing has begun to reinforce and accelerate this shift. The government annually fixes administered per-litre ethanol prices differentiated by feedstock, with assured offtake by Oil Marketing Companies. This is intended to provide farmers with a steady source of income that fairly accounts for their efforts. A feature of the pricing structure is that the administered price of ethanol is differentiated by feedstock, with a higher price for maize-based ethanol, a lower price for rice-based ethanol, and a price for molasses-based ethanol between the two. Between FY22 and FY25, the administered price of maize-based ethanol increased at a CAGR of 11.7 per cent, growing materially faster than ethanol derived from rice or molasses. This has created a strong and persistent price signal in favour of maize. It was hoped that this would help shift acreage from paddy to maize, with the former witnessing excess stocks and the latter being less water-intensive.
According to the survey, agricultural outcomes over the same period reflect a rational response to these incentives. Maize has recorded rapid growth in both production and cultivated area between FY22 and FY25, growing at a CAGR of 8.77 per cent and 6.68 per cent, respectively. During the same period, pulses have experienced a decline in output and acreage, while both oilseeds and cereals, excluding maize, have shown modest growth. The area cultivated for oilseeds grew at a CAGR of 1.7 per cent over the last four fiscal years, and cereals excluding maize recorded a CAGR of 2.9 per cent over the same time. Shifts in cultivation patterns are particularly visible in states such as Maharashtra and Karnataka50,51, where maize increasingly competes directly with pulses, oilseeds, soyabean, millets, and cotton for land, water, and labour. The expected reduction in paddy acreage has not materialised.
“From a food security perspective, the implications are non-trivial. Pulses and oilseeds are structurally important to India’s consumption basket and nutritional outcomes, yet they are shifting lower down the priority order for the nation’s cultivators. Over time, this imbalance risks entrenching India’s dependence on edible oil imports and exposing domestic food prices to greater volatility during supply shocks. This highlights an emerging tension between Aatmanirbharta in energy and Aatmanirbharta in food,” it noted.
International experience underscores the importance of caution. OECD-FAO analyses of biofuel programmes in major economies show that biofuel mandates and feedstock-specific price incentives can lead to long-term alterations to cropping patterns and food price dynamics when not periodically recalibrated.52 Countries with mature biofuel regimes have increasingly relied on adjustment mechanisms, feedstock caps, or a shift towards second- generation biofuels to mitigate competition with food crops. The Indian experience now displays similar early warning signals.
The survey highlights thats the policy challenge, therefore, is the concentration and durability of incentives that may unintentionally favour one set of crops over others. As the ethanol programme matures, there is a strong case for developing a comprehensive roadmap that takes a holistic view of energy security and food security. Key elements of such a roadmap could include accelerating yield improvements in pulses and oilseeds to restore their relative profitability, avoiding distortions in input and output markets that confer an undue advantage to specific feedstocks, and enabling targeted, planned growth of ethanol feedstocks aligned with regional resource endowments. Such an approach would preserve the economic logic of ethanol expansion while ensuring that energy security objectives are pursued without unintentionally weakening food security or nutritional outcomes.
