India’s ethanol industry is facing a massive oversupply crisis. In such a situation, producers are looking for new buyers and alternative markets to utilize the unused excess capacity of around seven billion liters i.e. 700 crore litres. In recent years, the rapid promotion of fuel blending by the government to reduce dependence on crude oil imports has led to a rapid increase in production capacity, industry officials said in an ET report. This expansion has far outstripped domestic demand, forcing ethanol producers to operate below their capacity.
Where and how much ethanol is used?
The ethanol production capacity of the country has reached approximately 20 billion liters and according to industry experts, it will increase by another four billion liters this year. However, the E20 fuel blending program requires only 11 billion liters annually, while non-fuel sectors such as alcohol, pharmaceuticals, and chemicals consume 3 to 3.5 billion liters. This leaves no clear market for the estimated seven billion liters of ethanol. According to senior industry officials involved in the business, distilleries are operating at barely 60 percent of their capacity and capacity utilization is expected to be between 65% and 75% over the next three years. An additional supply of 2.77 billion liters is estimated in Maharashtra alone.
The government has changed the planning
As of August, suppliers had supplied 8.95 billion liters of ethanol to oil marketing companies against a contract of 10 billion liters for 2025-26 (November-October). Meanwhile, the government has put on hold any plans to mandate higher flexi-fuel blends such as E25 or E30, given consumer backlash against E20. Under the roadmap, work will continue on E20 instead of E25 or E30 till October 31, 2026, and the central government has told the Supreme Court that the long-term impact of the program will be clear only by 2027.
Differential pricing system
Ravindra Utgikar, Chief Sales Officer of Willow India, a major supplier of pumping systems to ethanol manufacturing companies, said that instead of mandating the same blend for all, we should move towards fixing different prices for different ethanol blends – like E10, E20, E85. He said in an ET report that this method is already working well in America and Brazil. This gives vehicle owners the opportunity to select fuel based on their vehicle’s age, technology and compatibility, while also increasing overall ethanol consumption. Utgikar has been working in the biofuel industry for nearly two decades. This industry needs new buyers.
Ongoing dialogue with Nepal
Exports do not provide much relief. Export of first generation ethanol is still banned in the country. India has allowed export of only second generation ethanol from September 2025. A small amount of non-fuel ethanol is sent to Tanzania, Angola and Kenya, while the Grain Ethanol Manufacturers Association (GEMA) is negotiating with Nepal. Nepal is planning to make 10 percent blending mandatory, but lacks feedstock and distillery capacity.
A plan to add ethanol to diesel
The government and industry are now also considering the possibility of blending ethanol with diesel. Ashish Gaekwad, managing director of industrial biotechnology and engineering company ‘Praj Industries’ said in a media report that our bio-isobutanol technology is ready for commercialization and large-scale production and we expect to receive the first order in the current quarter of FY2027. The demand for diesel is much higher than that of petrol, so Bio-Isobutanol can prove to be an important step in India. The biofuel journey.
Praj Industries specializes in building turnkey bio-ethanol facilities. He further said that even the regulation of only 2 percent blending of bio-IBA in diesel could create an opportunity for projects worth over Rs 3,000 crore. Not every liter of ethanol can become fuel. Non-refined ethanol used in alcohol, pharmaceuticals and laboratory accounts for about 18.7 percent of the total demand. The associated ‘extra neutral alcohol’ market is expected to reach around 3.80 billion liters by 2025, growing at around 5 per cent annually as drinkers shift from country liquor to IMFL.
