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Informist, Friday, May 15, 2026

 

MUMBAI – The programme to use ethanol for blending with petrol has received an encouraging response, with the target of achieving 20% blending being met in December 2025, five years ahead of schedule. However, this has also resulted in overcapacity to produce ethanol, which is likely to persist in the short to medium term, CareEdge Ratings said in a note.

 

In India, the Ethanol Blended Petrol Programme was formally launched in 2003 but the initial progress remained limited. With the government subsequently implementing several key interventions such as administered prices, streamlined movement of interstate ethanol and financial incentives, ethanol-making capacity expanded. Long-term offtake agreements by oil marketing companies also improved investor confidence. Policy measures such as easing environmental clearances and advancing the E20 target to 2025 have significantly boosted ethanol production capacity, making India the third-largest ethanol producer in the world, it said.

 

"Consequently, ethanol blending has increased steadily from 5% to around 20%, in line with national targets. The sharp acceleration observed post-2021 underscores the tangible impact of coordinated policy measures, financial incentives, and regulatory support in scaling up the sector," it said.

 

The ethanol making capacity has grown substantially, with production capacity nearly tripling from 6.80 billion litres in 2018–19 to about 19.70 billion litres in 2025–26. Supply to oil marketing companies has expanded even faster, reflecting improved capacity utilisation supported by assured offtake mechanisms, it noted.

 

However, ethanol demand is largely capped at about 11 billion litres under E20 blending, with non-fuel applications contributing only 3 billion to 3.5 billion litres. "Meaningful demand expansion depends on scaling up higher ethanol blends (E85/E100) and Flex Fuel Vehicle adoption. In the absence of these demand-side triggers, incremental capacity additions are unlikely to be absorbed in the near term," it argued.

 

"Recent aggressive capacity expansion has led to significant underutilization across distilleries. At the current 20% blending level, it will take several years for this surplus capacity to be absorbed."

 

With the blending mandate currently capped at 20% (E20), the supply glut is likely to persist, and the industry is looking forward to E85 and E100 fuel standards and the adoption of flex-fuel vehicles.

 

"Recent draft amendments to the Central Motor Vehicles Rules, 1989, proposing the inclusion of higher ethanol blends under emission norms, provide a regulatory basis for the formal introduction of flexfuel vehicles and biodieselcapable vehicles in India. This development is supportive for the ethanol industry, which has witnessed sustained growth over the years, driven by proactive government support through multiple policy interventions," it said.  End

 

Reported by Abhijit Doshi

Edited by Avishek Dutta

 

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