India’s ethanol sector, once seen as a key part of the country’s clean fuel plan, is now facing excess production, with capacity far higher than current demand for blending with petrol, according to a report cited by The Times of India.
Industry data show that installed ethanol production capacity has reached nearly 20 billion litres, with an additional 4 billion litres expected to become available soon. However, the country’s annual requirement to meet the existing 20 percent blending target with petrol is about 11 billion litres. This has resulted in more than 50 percent surplus capacity in the sector.
The gap between supply and demand has raised concerns among policymakers and producers about the long-term viability of investments in the programme, which was launched to support farmers, reduce crude oil imports and lower emissions. Industry officials said distilleries are currently operating at only 25 to 30 percent of their capacity. New approvals for additional plants have also been paused due to uncertainty over future demand.
The impact of excess supply is being felt across the value chain, including sugar mills, grain processors and farmers who had depended on ethanol as a stable source of income. The All India Distillers’ Association estimates that ethanol has grown into a Rs 50,000 crore industry following rapid expansion aligned with government blending targets.
However, slower purchases by oil marketing companies have left producers with underused facilities and rising inventories. Industry representatives said many units were set up expecting steady growth in ethanol use, and they are seeking clarity from the government before new projects are approved.
Plans to increase blending beyond 20 percent remain unclear. Questions were raised last year about whether vehicles could safely use higher ethanol blends. Although the government rejected those concerns, it has not announced a new timeline for raising the target. Some consumers have also asked for lower prices for ethanol-blended fuel, arguing that it provides less energy than petrol and can slightly reduce fuel efficiency. The oil ministry rejected the request, saying ethanol remains more expensive than petrol.
During the 2024–25 period, nearly 100 new distilleries began operations, and several more are close to completion. Despite this expansion, demand growth continues to depend on existing policy limits, according to industry sources.
With petrol blending appearing to stabilise, attention is turning to the use of ethanol in diesel. Experts say this would be more complicated, as ethanol does not mix naturally with diesel and requires additional processing to remain stable. Oil companies are studying this option, but issues related to fuel stability, engine performance and long-term use are still under review.
Diesel accounts for a large share of fuel consumption in India, especially in transport, farming and public services, making any change in this area more sensitive.
Automobile manufacturers say uncertainty beyond the current blending level is slowing investment in vehicles that can run on higher ethanol mixes. Industry groups have urged the government to provide clear guidance and consider incentives to encourage wider adoption.
However, carmakers remain cautious, questioning whether supply chains and distribution systems are ready for higher blends such as 85 percent or 100 percent ethanol. While some prototype vehicles have been displayed, no major manufacturer has yet introduced a mass-market model designed for high ethanol use.
Manufacturers have suggested that tax incentives similar to those provided for electric vehicles could support faster adoption. They also note that ethanol contains less energy per litre than petrol or diesel, which may slightly reduce mileage. Policymakers continue to weigh these factors alongside investment concerns and consumer acceptance.
