Insular incentive: On ethanol-blended fuel and the Indian consumer
The Indian government’s policy to continue producing E20 petrol at a cost higher than that of pure petrol when oil prices dip under $70 a barrel to “compensate farmers adequately” is a deceptively well-formulated proposition. Most feedstock for the fuel-blending programme is from sugarcane, one of India’s most water- and fertilizer-intensive crops, mainly grown in water-stressed Maharashtra and Karnataka. Whether the policy’s net economic benefit remains positive will depend on the gains from lower crude imports, environmental improvements, and higher rural incomes outweighing these additional costs. Efficiency also remains a concern. Consumers — including people who are poorer than sugarcane farmers — pay more at the pump, oil marketing companies procure ethanol at the administered price, distilleries buy feedstock, and only then do farmers receive higher prices. Higher feedstock prices also do not address most reasons farmers have lower incomes, such as post-harvest losses and limited market access. Crucially, if the government rewards every unit of ethanol irrespective of feedstock, the policy will favour whichever feedstock has the largest installed base: sugarcane. Instead, the objectives should include resource efficiency and food security. The state could invest in irrigation and logistics and institute revenue-sharing arrangements with ethanol producers and cooperatives. India has encouraged maize and grain-based distillation capacity has expanded rapidly, periodically allowed ethanol to be produced from the Food Corporation’s surplus or damaged rice holdings, and has supported commercial plants using agricultural residues such as rice straw under Ministry of Petroleum and Natural Gas schemes. Maize and millets are less thirsty but maize still demands significant fertilizer inputs while millets produce less fermentable starch per hectare. Sweet sorghum is less water-intensive and has a shorter growing season than sugarcane. Lignocellulosic biomass such as rice and wheat straw, maize stover and groundnut shells can also support second-generation (2G) ethanol. 2G ethanol from agricultural residues can avoid using cropland for fuel, reducing competition with food crops and addressing stubble burning. It is more expensive and technologically demanding but that is a better problem to solve, with proactive policymaking. The government could pay a premium for ethanol produced from residues, subsidise equipment and infrastructure to collect and store crop residue, facilitate contracts between aggregators and distilleries, and provide viability-gap funding and offtake agreements. Ultimately, ethanol policy should not be independent of agricultural policy. And import substitution is no excuse for consumers being forced to pay more for lower-mileage fuel than pure petrol. Published - July 13, 2026 12:10 am IST Read Comments Copy link Email Facebook Twitter Telegram LinkedIn WhatsApp Reddit READ LATER SEE ALL Remove Related Topics government / petrol / oil and gas - upstream activities / water / fertiliser / Maharashtra / Karnataka / environmental issues / personal income / agriculture / food security / logistics / Ethanol / imports / India
- 1Ethanol blending mandates sit within the Centre's concurrent economic policymaking powers, drawing on Entry 33 of the Concurrent List covering trade and production of foodstuffs and Entry 27 of the State List on agriculture, creating a Centre-state coordination challenge. The Ministry of Petroleum and Natural Gas sets blending targets while state governments regulate sugarcane pricing through the Fair and Remunerative Price mechanism under the Sugarcane Control Order, 1966. This dual structure means ethanol policy success depends on cooperative federalism between Delhi's energy planners and state agricultural administrations.
- 2While primarily a domestic policy issue, the editorial's ethanol debate connects to India's broader energy import-substitution strategy, since ethanol blending is projected to save the country roughly one lakh crore rupees annually in crude oil import costs at full implementation. This reduces India's exposure to volatile global oil markets, similar to the diversification concerns raised in parallel editorials about Russian crude dependence. Brazil's long-established sugarcane-ethanol programme, often cited as a model, similarly shows both the benefits of energy self-reliance and the risks of over-committing farmland to a single cash crop.
- 3The regulatory architecture for ethanol pricing rests on the National Policy on Biofuels, 2018 (amended 2022), which advanced India's 20% blending target to 2025, alongside oil marketing companies fixing ex-mill ethanol prices as directed by the Cabinet Committee on Economic Affairs. Legal disputes have arisen over Minimum Support Price-linked sugarcane dues, with the Supreme Court in various sugar-sector cases upholding statutory dues to farmers under the Sugar Cess Act framework. Any shift toward residue-based 2G ethanol would require fresh regulatory guidelines on procurement and quality standards from the Bureau of Indian Standards and petroleum regulators.
- 4India achieved its 20% ethanol blending target in 2025, roughly five years ahead of the original 2030 deadline, primarily using sugarcane and surplus grain as feedstock. Maharashtra and Karnataka together account for a large share of national sugarcane output but rank among India's most water-stressed states, with groundwater levels in parts of Marathwada falling by over four metres in a decade. The editorial's data point that consumers pay more for E20 petrol despite its lower per-litre mileage underscores a direct economic trade-off between energy security gains and household fuel costs.