15 Dec 2025
NEW DELHI: India’s ethanol blending programme, originally built around surplus sugarcane, is increasingly being driven by grain-based feedstocks, a shift that industry executives say is reshaping supply dynamics and eroding the sugar sector’s role in the market. Pricing differences and logistics-led procurement rules adopted by oil marketing companies (OMCs) have resulted in a sharp tilt in ethanol supply orders towards grains such as maize and surplus rice.
For the 2025–26 ethanol supply year (November–October), OMCs have so far placed orders for 10.5 billion litres of ethanol. Of this, only about 28 percent is expected to come from sugarcane-based feedstocks, including cane juice and B-heavy and C-heavy molasses. The remaining 72 percent has been contracted from grain-based sources, primarily maize and Food Corporation of India (FCI) rice.
This marks a significant departure from earlier years. In 2019–20, the sugar sector supplied 1.57 billion litres of ethanol, accounting for 91 percent of total procurement. As recently as 2022–23, sugar-based feedstocks still contributed about 70 percent of the ethanol blended under the programme.
The shift accelerated from 2023–24, when concerns over domestic sugar availability coincided with an election year. Initial estimates pointed to a 9–12 percent decline in sugar output, prompting the government to restrict ethanol production from most sugarcane feedstocks to contain sugar prices. To sustain progress on blending targets, the government encouraged ethanol production from grains, particularly maize. Although restrictions on cane-based ethanol were lifted the following year, sugar producers have struggled to regain the market share ceded to grain-based suppliers.
“We are looking at a fine calibration of the feedstock mix. From 91 percent, we are down to 28 percent. We are not asking to go back to 91 percent, but even 40–50 percent would bring a healthier balance to the industry,” said Madhav B. Shriram, Managing Director of DCM Shriram Industries Ltd.
High offers, limited orders in 2025–26
Data from the Indian Sugar & Bio-Energy Manufacturers Association (ISMA) show that distillers offered to supply 4.72 billion litres of ethanol from sugar-based feedstocks for 2025–26, but OMCs placed orders for only 2.89 billion litres. Industry experts attribute this gap to the ethanol procurement framework followed by oil companies, which prioritises suppliers based on feedstock type and location.
ISMA Director General Deepak Ballani explained that allocation priority is given first to cooperative sugar mills with distillation capacity, followed by dedicated ethanol plants (DEPs), which are predominantly grain-based, and only thereafter to sugarcane juice and molasses-based units. While cooperative mills receive preference, their combined distillation capacity is relatively small at around 560 million litres. In contrast, DEPs account for about 3.5 billion litres of capacity, most of which runs on grain feedstocks.
A crowded and imbalanced market
Even as grain-based ethanol dominates procurement, sections of the grain industry have also expressed concerns about underutilised capacities and uneven allocation among distilleries. While the procurement policy aims to promote local sourcing and reduce logistics costs, its implementation has created regional imbalances.
Preliminary allocation data suggest that a large share of new ethanol orders has gone to eastern states, particularly Bihar, where several new grain-based distilleries have been commissioned. While this supports decentralised production, traditional ethanol hubs such as Maharashtra and Karnataka argue that the shift disadvantages surplus regions that previously supplied ethanol to deficit states.
“Earlier, ethanol moved from surplus to deficit regions, ensuring steady markets for producers. Now, with maize-based ethanol being produced locally in those states, logistics costs are lower for them, and OMCs naturally prefer local suppliers,” Shriram said.
India has already achieved 20 percent ethanol blending in petrol, limiting the scope for further demand growth in the absence of higher blending mandates. While distillers across feedstocks are advocating the adoption of flex-fuel vehicles and higher ethanol blends, consumer acceptance and vehicle compatibility remain key constraints.
India’s annual ethanol production capacity is estimated at around 18 billion litres, significantly higher than the roughly 11 billion litres demanded by OMCs. “Capacity expansion could have been planned in a more calibrated manner, alongside measures to stimulate demand,” Ballani said.
As India consolidates its E20 achievement, industry stakeholders are increasingly calling for a more balanced and predictable ethanol policy—one that aligns feedstock diversity, regional capacities and long-term demand growth to ensure the sustainability of both the sugar and grain-based ethanol ecosystems.