New Delhi: India's efforts to expand ethanol production and reduce dependence on imported oil are facing fresh challenges as poor monsoon rainfall, rising food prices and concerns over agricultural supplies force the government to prioritise food security.
The country's ethanol blending rate could fall from 20 per cent to between 15 and 17 per cent during the 2026 to 2027 supply year, according to industry estimates. The possible decline comes after India achieved its 20 per cent blending target ahead of schedule.
The government has restricted the use of certain sugarcane products for ethanol production from November 1, 2026, to October 31, 2027. The restrictions cover sugarcane juice, sugar, sugar syrup and B heavy molasses, which are used in ethanol production.
The decision aims to protect domestic sugar supplies at a time when agricultural production is under pressure and food prices are rising. However, ethanol produced from C heavy molasses remains permitted.
The move highlights the growing challenge of balancing India's energy security ambitions with the need to ensure adequate food supplies for its population.
India's agricultural sector has been affected by a weak southwest monsoon, with rainfall between June and September reaching approximately 12.56 per cent below the Long Period Average. The India Meteorological Department recorded around 759.5 millimetres of rainfall against the normal level of 868.6 millimetres.
The rainfall shortage has raised concerns about crop production, particularly in important agricultural regions. Developing El Niño conditions have added to uncertainty over future weather patterns and agricultural output.
Food prices have come under further pressure. India's food inflation increased to 7.74 per cent in September from 5.97 per cent in August, according to provisional government figures. Overall retail inflation also rose from 4.83 per cent to 5.54 per cent during the same period.
Higher prices for agricultural commodities have created additional difficulties for ethanol producers, who depend on crops such as sugarcane and corn as raw materials.
The government is now looking towards alternative sources, particularly corn and surplus rice, to maintain ethanol production. However, these options also face supply and cost challenges.
In another development, the procurement price for ethanol produced from corn has been reduced from 71.86 rupees to 68.86 rupees per litre. The reduction comes at a time when corn prices are rising, creating concerns among producers about the financial viability of expanding production.
On October 28, the All India Distillers' Association asked the government to increase the procurement price of corn based ethanol to 75 rupees per litre. The association argued that rising corn prices and production costs were making the existing rate difficult for producers.
Industry representatives have also warned that lower corn availability could affect the supply of grain based ethanol. Some industry estimates suggest that corn production could decline by as much as 15 per cent from the previous record of 55 million tonnes. However, this remains an industry estimate rather than a confirmed government production figure.
The government has attempted to address the supply challenges by making surplus rice available for ethanol production. The Food Corporation of India has allocated 7.2 million tonnes of surplus rice for the programme through June 2027. The quantity could produce up to 3.24 billion litres of ethanol.
The allocation is expected to help compensate for the restrictions on sugar based production. However, questions remain about whether the available rice and corn supplies will be sufficient to maintain the 20 per cent blending level.
India introduced its Ethanol Blended Petrol Programme to reduce dependence on imported petroleum, support domestic agriculture and promote alternative energy sources. Ethanol is an alcohol used as fuel and can be produced from agricultural materials such as sugarcane, corn and certain foodgrain stocks. It is mixed with petrol to reduce the amount of conventional fuel used in vehicles.
The country had originally planned to achieve 20 per cent ethanol blending by 2030 but later advanced the deadline to the 2025 to 2026 supply year. The government confirmed that India achieved the target five years ahead of the original schedule.
The programme has encouraged major investments in ethanol production facilities. India's annual ethanol production capacity has expanded to approximately 20 billion litres, reflecting expectations of continued growth in demand.
However, a possible decline in blending could leave some production facilities operating below capacity and create financial difficulties for companies that invested in expanding their operations.
The development also raises questions about India's efforts to reduce its dependence on imported oil. Lower ethanol blending could increase the country's demand for conventional petrol, although the extent of any additional petroleum imports remains uncertain.
India has not officially abandoned its 20 per cent ethanol blending target. The government is instead attempting to maintain the programme by shifting towards alternative feedstocks while protecting domestic food supplies.
The challenge will be to secure enough agricultural materials for both food consumption and fuel production without increasing pressure on farmers, consumers and the energy industry.