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Informist, Tuesday, Feb. 10, 2026

 

By Afra Abubacker

 

NEW DELHI – With ethanol blending currently capped at 20% in petrol, India's biofuel industry is focussing on creating new demand avenues by blending ethanol in other fuels such as diesel, jet fuel, and maritime fuel. The industry is also urging the government to cut the goods and services tax on flex-fuel vehicles, designed to run on higher ethanol blends such as E85 or more, as the country grapples with surplus ethanol production capacity.

 

"The ethanol sector is at a saturation point right now. The big question is what comes next in terms of policy," Bharati Balaji, director and general counsel at the All-India Distillers' Association, told Informist on the sidelines of a roundtable on ethanol–diesel and isobutanol blending on Monday.

 

"In 2024-25, about 93 distilleries came up, and around 38 more are in the pipeline," she said, highlighting the industry's need to secure supportive government policies for biofuel blending in aviation and marine fuels. The association has about 119 members, covering both grain-based and molasses-based distilleries across the country.

 

India currently has an ethanol production capacity of over 19 billion litres, while oil marketing companies require only 12 billion litres in 2025-26 (Nov-Oct) to sustain 20% ethanol blending in petrol uniformly across the country.

 

The industry is also exploring the commercial blending of isobutanol, a drop-in biofuel in diesel, after a pilot project with the Karnataka State Road Transport Corporation showed promising results. "KSRTC had run a pilot project using ethanol–diesel blending on around 150 buses. The pilot was successful, but it was not scaled up for reasons we are not clear about," Balaji said.

 

According to her, the government is awaiting findings from Praj Industries Ltd.'s pilot project on isobutanol blending in diesel to assess its technical feasibility and commercial viability. The report is expected in three to four months, she said, adding that current technology allows blending of isobutanol up to about 7.7% in diesel.

 

Balaji said the industry still lacks clarity on the government's roadmap for ethanol blending beyond 20%. The sector has seen several greenfield and brownfield expansions in recent years, driven by expectations that the government would soon scale up ethanol blending in a phased manner to 30% in petrol after achieving E20.

 

However, the government has effectively plateaued blending at 20% due to concerns over fuel efficiency, vehicle compatibility, and the diversion of food crops for fuel production. There is also growing consumer criticism over the compulsory use of blended petrol.

 

"Today, we are sitting on surplus capacities and figuring out what to do," Balaji said, adding that the industry is engaging with the government to secure supportive policies for flex-fuel vehicles and other green technologies.

 

The association is also advocating adoption of state-level incentives, such as those introduced in Sikkim, to encourage original equipment manufacturers to produce flex-fuel vehicles and attract consumers towards green technologies. "Sikkim is the first state in the country to exempt flex-fuel vehicles from road tax. If Sikkim can do it, other states can follow suit," Balaji said.

 

Despite higher manufacturing costs, flex-fuel vehicles attract GST of 18–40%, compared with just 5% for electric vehicles. This increases the cost of ethanol-powered vehicles and reduces their appeal to customers. While electric vehicles promote green mobility, they depend on imported critical materials such as rare earths. In contrast, ethanol-powered flex-fuel vehicles rely on domestic feedstock and indigenous technologies, reducing exposure to geopolitical risks.  End

 

Edited by Ashish Shirke

 

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