Between 2014 and 2019, India’s sugar sector faced a severe glut following consecutive years of record sugarcane and sugar production, leading to massive stockpiles—by 2018–19, carry-over stocks equalled nearly half of annual output. The resulting oversupply caused domestic sugar prices to crash below production costs, pushing mills into financial distress and triggering heavy losses. Mills’ cash flow problems translated into delayed payments to farmers, with cane arrears peaking at INR 21,837 crore in 2014–15 and remaining high at INR 11,697 crore in 2018–19.
To address the liquidity crunch and ease market pressure, the government rolled out export incentives totalling around INR 17,556 crore (including INR 2,000 crore for buffer stock carrying costs) between 2014–15 and 2021–22, enabling mills to export surplus sugar and stabilize prices, though these measures later drew international scrutiny. The export incentive did not only caused a big loss to exchequers but also was a long term unsustainable solution of higher sugar production.
The policy solution: ethanol blending (EBP) and targeted support
Citing an opportunity in adversity, Govt. found a win-win solution to promote ethanol blending policy in India where surplus sugar could be converted into ethanol which could not only solve the farmers cane payment issues but also help in energy security by reducing crude imports, saving foreign exchange and reducing carbon foot prints.
Under the leadership and vision of honourable Prime Minister Mr. Narendra Modi the Centre pursued a multi-pronged strategy. Starting from 2014 onward with fixing feedstock wise ethanol price and then accelerating the program after the National Policy on Biofuels (2018) with further amendment to that by providing roadmap for ethanol blending program in 2021.
2.1 Key policy building blocks
a) Fixed, feedstock-wise remunerative pricing.
This was the most unique idea brought in by government. The government moved to transparent, feedstock-wise pricing (molasses-based, B-heavy or C-heavy molasses, sugarcane juice/syrup and grain/rice/corn routes), publishing ex-mill procurement prices for each ethanol type. This made long-term planning attractive for both mills and grain processors and supported millers to sacrifice sugar in favour of ethanol. Official tender cycles and price revisions for successive Ethanol Supply Years (ESYs) were used to signal demand and remunerative rates.
b) Interest-subvention and soft-loan schemes.
To induce capacity expansion, the government offered financial support by way of interest subvention, concessional loans and time-bound incentives for building new distilleries or converting existing ones to dual feedstock (molasses + syrup/juice or grain). These schemes reduced the effective cost of capex and raised investment appetite. Several official Schemes to Enhance Ethanol Distillation Capacity were announced and extended as needed.
c) Faster environment clearances and regulatory facilitation.
To accelerate project commissioning, procedural bottlenecks specially the environment clearances& registrations for ethanol suppliers were rationalized and timelines relaxed in many cases so distilleries could come online faster. The government also introduced one-time registration and visibility of five-year demand to help lenders and investors.
d) Mandatory procurement by Oil Marketing Companies (OMCs).
While the supply side was being supported the government also focussed on demand side by making public sector OMCs (IOC, BPCL, HPCL etc.) as the anchor buyers of ethanol for blending. The OMC’s were required to procure volumes via tenders for each ESY. That guaranteed off-take and reduced demand risk for new suppliers.
e) A clear roadmap and targets (National Policy on Biofuels + Roadmap 2020–25).
Not only policy push, but government also published the National biofuel policy in 2018 and its amendment in 2021 as road map of ethanol for year 2020-2025. This brough great transparency to system and increase credibility in the program as these documents outlaid the present situation at that time and practical plan to achieve the targets by using different feedstocks dividing them in major groups of sugar and grains.
Results: capacity expansion, farm relief and macro gains
Rapid growth in ethanol distillation capacity (2014 → 2025/26)
Policy support translated into dramatic capacity growth. Starting from just 421 crore litre in 2014-15 (molasses 215 cr litre and grains 206 cr litres) to 1850 crore litres (molasses 1000 cr litres and grains 850 cr litres)
Cane arrears reversed:
sharper payments to farmers (2020–2024)
As mills earned new revenues from ethanol, which indirectly also started supporting domestic prices and eliminating distress sales scenario, the sugarcane payment scenario also improved significantly. From 21837 crore arear in 2015 and 11697 cr arrears as on 30-Sep-2018 the arrears reduced to just INR 5910 cr by September 30, 2022 and about 3000 crore only as on 30th Sep 2024.
Increasing sugarcane production trends
This all lead to increase in sugarcane area, yield and recovery, which was a function of early variety in Uttar Pradesh and better irrigation facilities in Maharashtra along with farmers growing sugarcane due to better payment and remuneration. In 2014-15 the record gross sugar production was 283 lakh Mt, which reached to record high of 392 lakh Mt in 2021-22 and now during normal rainfall scenario 350 to 400 lakh Mt is the range.
Environmental and macro gains
a) Carbon dioxide emissions saving
Through its Ethanol Blended Petrol (EBP) program, India has saved approximately 736 lakh Mt tonnes of carbon dioxide (CO2) emissions between 2014 and 2025., which is equivalent to planting 3000 Lakh trees.
b) Foreign-exchange savings
The program has led to foreign exchange saving of about INR 1.4 lakh cr since 2014 by reducing the crude imports by 238.68 lakh Mt.
c) Payment to farmers
Over the past 11 years, ethanol procurement has enabled INR 1.21 lakh crore income to farmers.
Replicating Ethanol Blending Policy from Sugarcane ethanol to Grains Ethanol:
Govt after successfully implementing the Ethanol policy to benefit the sugarcane farmers, replicated the same policy to promote grain ethanol. The challenge in Maize was that prices of maize was always lower then the Minimum Support Prices of Maize and farmers were the sufferer. Govt. started encouraging the production of grain ethanol in late 2022 onwards, resultantly Maize price rose from Rs. 18130/Mt in Oct 2021 to Rs 25170/Mt in September 2022, an increase of 39% in just one year benefitting our farmers and even till now the average maize price is around INR 22000/Mt, primarily in Bihar, UP and Karnataka where there is maximum production of maize.
Current scenario and fresh challenges (late 2023–2025)
EBP has been a success story, but it brings second-order issues that need active policy attention.
a) Excess capacity vs actual blending / offtake
Initially corn based capacity addition was slow and more than 80% ethanol for blending was provided by sugar industry, so sugar ethanol capacity augmentation was faster and reached 1000 cr litre significantly higher than planned 760 cr litre, but tat the same time after 2021-22 the grain capacity addition also surged and crossed planned 740 cr litre. While government planned in the road map to take 54% of EBP requirement from sugar-based ethanol, it changed after 2023-24 and after government focus on grain ethanol increased and now in 2024-25 the blend percent coverage from sugar-based ethanol comes to 33% only. So, this implies that overall while grain capacities are utilized to the extant of 90% the sugar-based ethanol capacity remain underutilized to the tune of 50%.
b) Rising corn production and policy effects (2018–2025)
A policy pivot to allow and encourage corn-based ethanol (to diversify and making grain ethanol sustainable) led to a sharp rise in corn demand for ethanol. India shifted from being a net corn exporter to importer for domestic use. Corn production itself increased from 288 lakh Mt in 2020-21 to 423 lakh Mt in 2024-25 and is still growing. The increase in corn production majorly has happened due to increase in area as earlier farmers used to get prices below minimum support price, but due to ethanol industry demand the corn prices saw significant increment and farmers started getting MSP or more than MSP prices.
c) Higher sugar production
Good monsoon seasons, better irrigation facilities, improved yields and better and timely remuneration creating more sugar than needed. Even with ethanol as an outlet, in some years ethanol utilization hasn’t absorbed all surplus sugar (since converting sugar to ethanol requires diversion decisions, pricing, and regulatory permissions). The government periodically adjusts rules (allowing cane juice / syrup diversion, permitting B-heavy usage, opening rice/grain purchases in constrained years) to avoid sharp sugar price swings. Still, mismatch between sugar output and ethanol utilization is creating pressure on mills cash flows.
Way forward: policy options and trade-offs
a) EBP beyond 20% — pros and challenges
Positive: moving to E25–E30 (or beyond) increases fossil substitution, further saves forex, deepens rural demand for cane/grain and spreads industrial activity. It also accelerates CO₂ reductions.
Challenges & mitigations:
= Vehicle compatibility: older vehicles may face mileage or material-compatibility issues; phasing, labelling and OEM testing/assurance are needed. Government has actively engaged OEMs and released clarifications that E20 does not void insurance and is safe for modern cars. A similar evidence-based roll-out would be needed for blends beyond 20%.
= Feedstock sustainability: higher blends may push more grain into fuel; India must avoid food/ feed shocks. The mix should prioritise non-food/residuals, sugarcane secondary streams (B-heavy, syrup), cellulosic routes (2G ethanol) and waste/residue feedstocks where possible. Investment incentives for 2G ethanol and residue-to-ethanol projects will be strategic.
= Infrastructure & logistics: pumps, storage, distribution and testing labs must scale; OMC procurement processes should be predictable to absorb new capacity.
b) Flex-fuel vehicles (FFVs): viability and constraints in India
Viability: FFVs can run on high-ethanol blends, technology is proven, it exist globally, does not have range anxiety like electric vehicles; they can flexibly consume whatever blend is supplied. For India, FFVs could be a long-run technical option to permit elevated blends without requiring engine changes for every car.
Challenges: FFV costs are higher than normal vehicle. Ethanol having lower calorific value needs to priced accordingly. There is a solution to the problem. At the central govt level, GST can be reduced for FFV like the Govt. have done it for EV where GST is 5% as compared to other vehicle where GST is 18% to 40% State Govt. desirous of promoting farmer and ethanol production in their state can reduce the Road Tax on FFV which is entirely in the hands of the states.
Allow direct distribution / sale from distillery & mill sites
Allowing direct sale of ethanol-blended petrol or direct ethanol transfers from distilleries/mills to local off-takers (subject to quality checks and taxes) could reduce logistics costs and accelerate local blending, especially in sugarcane-dense regions. Careful regulation plus clear accounting for excise/taxes would be needed. Many industry stakeholders have advocated for more flexible channels so that supply chains become more efficient.
Practical recommendations
(policy checklist)
1. Maintain transparent, long-term OMC procurement windows (multi-year visibility) so investors can plan capacity without fear of sudden demand shortfalls.
2. Balance feedstock mix: continue prioritising sugarcane molasses/juice and waste residues; encourage 2G ethanol projects through concessional support and fast clearances; monitor grain diversion closely.
3. Gradual, evidence-led increase beyond 20%: pilot E25/E27 in regions with low food-feed risk and strong supply chains, run OEM compatibility studies and use phased rollouts.
4. Rolling out FFV: roll out FFV in the surplus ethanol. Not only the Central Govt but also the State Govt. shall come forward to incentivise the same by reducing road tax on FFV vehicles.
5. Enable direct offtake and local blending options after suitable regulatory safeguards to cut logistics costs and help smaller suppliers.
6. Social safeguarding: use part of the ethanol proceeds to create crop diversification incentives and resilience instruments for small cane farmers in years of low sugar prices.
7. Data transparency: publish regular, granular reports on ethanol procurement, blending percentage by state, feedstock mix and capacity utilization to allow the market to self-correct.
Final takeaways
India’s ethanol blending drive is a textbook case of industrial policy that used a combination of price signals, procurement guarantees, financing support and regulatory fixes to solve an acute agricultural and macroeconomic problem. The programme turned sugar overhang and mill liquidity stress into an investment boom in distillation and value addition — cutting oil import bills and emissions while putting money into rural pockets. The next phase must manage feedstock competition, utilization of new capacity and the technical/regulatory work needed to safely raise blends beyond 20%. If managed well, EBP can be a long-run win for energy security, farmer incomes and climate objectives.
By Ravi Gupta
(The Author is Chairman of Sugar Bioenergy Group, Indian Federation of Green Energy (IFGE) and Executive Director of Shree Renuka Sugars Limited.)
(The content of this article reflects the views of writer and contributor, not necessarily those of the publisher and editor. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Delhi/New Delhi only)
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