New Delhi: India’s rapid expansion of ethanol production capacity has created a substantial supply-demand gap, leaving nearly 7 billion litres of capacity without a clear market and pushing producers to explore new buyers and alternative applications, The Economic Times reported.
India’s installed ethanol production capacity has reached around 20 billion litres and is expected to increase by another 4 billion litres this year. However, the E20 blending programme requires about 11 billion litres annually, while non-fuel sectors, including liquor, pharmaceuticals and chemicals, consume another 3-3.5 billion litres.
The mismatch has resulted in ethanol plants operating at around 60% capacity. Industry officials expect capacity utilisation to remain between 65% and 75% over the next three years. Maharashtra alone is estimated to have a surplus of around 2.77 billion litres.
During the 2025-26 ethanol supply year, running from November to October, suppliers had delivered 8.95 billion litres to oil marketing companies by August, against contracted volumes of around 10 billion litres.
The growing surplus has intensified the industry’s efforts to identify additional sources of demand. The government has also put on hold any immediate move towards higher mandatory blending levels such as E25 or E30 following concerns raised by consumers over E20. The existing roadmap remains capped at E20 until October 31, 2026, while the Centre has told the Supreme Court that the longer-term impact of the programme would become clearer only by 2027.
Ravindra Utgikar, chief sales officer at Wilo India, suggested that India could consider differential pricing for different ethanol blends instead of mandating a uniform blending level.
“Instead of mandating a single blend for all, we should move to differential pricing for different ethanol blends — E10, E20, E85,” Utgikar said. He noted that the approach is followed in the US and Brazil and could give vehicle owners the option to choose fuel according to vehicle age, technology and compatibility, while also supporting broader ethanol adoption.
With domestic demand unable to absorb the expanding production capacity, exports are expected to offer only limited relief. Exports of first-generation ethanol remain restricted, while India has allowed exports of second-generation ethanol since September 2025.
Small quantities of non-fuel ethanol are being exported to markets including Tanzania, Angola and Kenya. The Grain Ethanol Manufacturers Association (GEMA) is also discussing potential supplies to Nepal, which plans to introduce a 10% ethanol blending mandate but does not have sufficient feedstock and distillation capacity.
The industry is simultaneously looking at applications beyond petrol blending. The government and ethanol producers are examining the possibility of using ethanol-derived products for blending with diesel.
Ashish Gaikwad, managing director of Praj Industries, said the company’s bio-isobutanol technology was ready for commercialisation and scale-up, with the first order expected during the current quarter of FY27.
“With diesel demand far larger than petrol, bio-IBA blending could become a significant milestone in India’s biofuels journey,” Gaikwad said. He added that a 2% bio-IBA blending mandate in diesel could create project opportunities worth more than Rs 3,000 crore.
Meanwhile, non-fuel applications continue to account for a significant share of ethanol demand. Undenatured ethanol used by the liquor, pharmaceutical and laboratory sectors represents nearly 18.7% of overall demand.
The associated extra neutral alcohol (ENA) market reached around 3.80 billion litres in 2025 and is growing at about 5% annually, supported by changing consumer preferences from country liquor towards Indian-made foreign liquor (IMFL).
