Key Takeaways

• India’s ethanol industry faces a surplus of nearly seven billion litres due to rapid capacity expansion, outpacing demand.
• Current fuel blending programs require less ethanol than is produced, resulting in manufacturers operating below capacity.
• There are calls for differential pricing for various ethanol blends to boost adoption and create new market opportunities.

Ethanol Supply Challenges in India

India’s ethanol industry is grappling with a significant oversupply crisis, leading manufacturers to seek new buyers and alternative markets for an estimated seven billion litres of unused ethanol. This situation arises from rapid expansion of production capacity driven by governmental initiatives aimed at reducing reliance on crude oil imports through a fuel blending strategy. The installed ethanol capacity in the country has reached around 20 billion litres, with an additional four billion litres expected to be added this year.

According to industry experts, the current fuel blending program, known as E20, demands around 11 billion litres annually. Non-fuel sectors, such as liquor and pharmaceuticals, account for another 3 to 3.5 billion litres, leaving a substantial surplus. As a result, many distilleries are reported to be operating at approximately 60% capacity, with anticipated utilization rates hovering between 65% and 75% over the next few years. Notably, Maharashtra is projected to have a surplus of 2.77 billion litres.

By August, suppliers managed to deliver 8.95 billion litres of ethanol to oil marketing companies for blending into fuel, which is short of the 10 billion litres contracted for the November-October period of the 2025-26 fiscal year. In response to pushback from consumers, the government has paused plans to introduce higher flex-fuel blends such as E25 or E30. The roadmap for the E20 initiative remains capped until October 31, 2026, with the government stating that the long-term effects of this program will become clearer by 2027.

In light of these supply challenges, industry leaders like Ravindra Utgikar, chief sales officer at Wilo India, are advocating for differential pricing of various ethanol blends—E10, E20, and E85. Such a system, which has been successful in countries like the US and Brazil, would provide consumers with the option to select fuel types based on their vehicles’ compatibility, thereby fostering greater ethanol adoption across the market.

Despite the pressing need for new buyers, export opportunities for first-generation ethanol remain restricted. Since September 2025, India has only approved second-generation ethanol exports. Current non-fuel export volumes are minimal, mostly targeting markets like Tanzania, Angola, and Kenya. The Grain Ethanol Manufacturers Association (GEMA) is also negotiating with Nepal, which has plans for a 10% ethanol blending mandate but lacks the necessary infrastructure for production.

Moreover, the government and industry are exploring new approaches, such as blending ethanol with diesel. Ashish Gaikwad, managing director of Praj Industries, mentioned that their bio-isobutanol technology is ready for commercialization and could significantly impact India’s biofuels landscape. A mere 2% blending of bio-IBA with diesel could potentially generate projects worth over INR 3,000 crore.

It’s noteworthy that not every litre of ethanol produced is utilized as fuel; undenatured ethanol is primarily consumed in liquor, pharmaceuticals, and laboratories, making up about 18.7% of the total demand. The extra neutral alcohol market was estimated at approximately 3.80 billion litres in 2025, with a growth rate of about 5% annually as consumer preferences shift toward more refined alcoholic beverages.

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