Mumbai: India’s ethanol industry, once projected as a key driver of the country’s clean fuel push, is now facing a glut, with production capacity far exceeding current blending requirements, according to an ET report, The Times of India reported.
Industry figures indicate that installed ethanol capacity has reached nearly 20 billion litres, with another 4 billion litres expected to come on stream soon. This far exceeds the annual requirement of about 11 billion litres needed to meet the existing 20% ethanol blending with petrol (E20) target for the ethanol year that began last November. As a result, the industry is facing more than 50% surplus capacity.
The imbalance has sparked concern among policymakers and producers about the sustainability of investments and the future course of a programme initially launched to support farmers, reduce crude oil imports and curb emissions. Distilleries are currently operating at only 25% to 30% of their capacity, while fresh approvals for new units have been put on hold amid uncertainty over future demand, industry officials said.
The effects of oversupply are being felt across the supply chain, impacting sugar mills, grain processors and farmers who had come to depend on ethanol as a steady source of income. The All India Distillers’ Association (AIDA) estimates that ethanol has grown into a Rs 50,000 crore industry following rapid capacity expansion aligned with government blending targets.
However, slower procurement by oil marketing companies has left producers coping with idle plants and rising stockpiles. Deepak Ballani, Director General of the Indian Sugar & Bio Energy Manufacturers Association, told ET that many distilleries were established on the expectation that ethanol consumption would steadily rise. He added that clarity from the government on future blending targets is essential before new approvals can resume.
Plans to increase blending beyond the 20% level remain unclear. Concerns were raised last year about vehicle compatibility with higher ethanol blends. Although the government rejected those claims, it has not announced a new timeline for expanding blending targets. Consumers have also sought price reductions for ethanol-blended fuel, citing its lower energy content compared with petrol, which can reduce fuel efficiency by more than 3% at a 20% blend. The oil ministry declined the proposal in August, stating that ethanol remains more expensive than petrol.
During 2024–25, nearly 100 new distilleries began operations, with several more nearing completion. However, demand growth continues to be tied to existing policy limits, AIDA said.
With petrol blending appearing to stabilise, industry focus is shifting toward the possibility of using ethanol in diesel. Experts say this is more complex, as ethanol does not naturally mix with diesel and requires an additional chemical agent to maintain stability. Indian Oil Corporation and Bharat Petroleum Corporation are examining ethanol-diesel blends, but issues such as fuel stability, engine performance and long-term durability are still under review.
Diesel accounts for a much larger share of India’s fuel consumption, particularly in freight transport, farming and public transport, making any shift highly sensitive.
Automobile manufacturers say uncertainty over policy beyond E20 is delaying investment in flex-fuel vehicles, which can operate on higher ethanol blends. Industry representatives have called for clear guidance from the government. AIDA has recommended encouraging flex-fuel vehicles and reducing GST rates to boost adoption.
Carmakers, however, remain cautious, questioning whether adequate supply and distribution systems will be in place for higher blends such as E85 or E100. No major manufacturer has yet introduced a mass-market flex-fuel vehicle, though several prototypes have been unveiled. Industry sources indicated that Maruti Suzuki may launch flex-fuel versions of its Wagon R and Fronx models, while Tata Motors, Toyota Kirloskar Motor and Mahindra & Mahindra have also displayed prototype vehicles.
Manufacturers have argued that tax incentives similar to those offered for electric vehicles could speed up adoption. While flex-fuel vehicles may help meet fuel efficiency norms, ethanol contains less energy per litre than petrol or diesel, which could slightly reduce mileage — an issue policymakers continue to weigh alongside investment concerns and consumer acceptance.
