India’s ethanol industry, once hailed as a cornerstone of the country’s green energy ambitions, is now grappling with an unexpected problem: too much capacity and nowhere to send it. As of December 2025, the nation is sitting on more than 450 crore litres of unused ethanol production capacity, according to the Indian Sugar and Bio-Energy Manufacturers Association (ISMA). This surplus, industry leaders warn, is threatening to slow the sector’s growth and undermine hard-won gains in energy security, rural incomes, and carbon emissions reduction.
ISMA Director General Deepak Ballani, speaking to reporters and cited by Deccan Herald, laid out the numbers with clarity. India’s annual ethanol production capacity stands at a whopping 1,900 crore litres—900 crore litres from sugar-based feedstocks and another 1,000 crore litres from grains such as rice and maize. Yet, much of this capacity is lying idle. For the Ethanol Supply Year (ESY) 2025–26, only 289 crore litres of ethanol have been allocated to the sugar sector. That’s just 27.5% of the total allocations, leaving a significant chunk of distillery infrastructure underutilized.
"The country has already built the required capacity, but much of it is lying idle," Ballani said, emphasizing the sense of frustration among producers. The sugar mills, in particular, are feeling the pinch from these lower allocations. The imbalance, Ballani explained, is not just a matter of wasted investment—it threatens the financial health of sugar producers and, by extension, the farmers who supply them.
ISMA has responded by urging the government to take two decisive steps: approve ethanol exports and increase the proportion of ethanol blended into petrol. Both measures, the association argues, would help absorb the surplus and keep the industry on its growth trajectory. As Ballani put it, "The government should permit the export of surplus ethanol and also increase the level of ethanol blending in petrol."
The stakes are high. Ethanol blending in petrol has delivered tangible benefits to India’s economy and environment. According to ISMA, the program has saved the country about ₹1.55 lakh crore in foreign exchange by reducing the need for imported oil. It has also put an estimated ₹1.36 lakh crore into farmers’ pockets, offering a much-needed boost to rural incomes. Perhaps most strikingly, the shift to ethanol has cut CO₂ emissions by nearly 790 lakh metric tonnes—an amount equivalent to taking about 175 lakh vehicles off the road.
These are no small feats. For a country as populous and energy-hungry as India, reducing dependence on imported fossil fuels is both a strategic and economic imperative. The environmental gains, meanwhile, dovetail with India’s ambitious commitments under the Paris Agreement and its broader push for sustainable development.
Yet, as ISMA points out, the current allocation system threatens to stall this momentum. The underutilization of distillery capacity is not just a technical issue; it has real-world consequences for investment, jobs, and the livelihoods of millions of farmers. The association’s call to action is clear: if India can’t use all the ethanol it produces domestically, it should be allowed to sell the surplus abroad.
This is not a new argument, but it’s one that’s gaining urgency as the numbers stack up. According to official data reported by Deccan Herald and other outlets, India has already achieved 20% ethanol blending in petrol—a milestone that puts it ahead of many other countries. The industry, however, is not content to rest on its laurels. ISMA has been lobbying for an increase to 30% blending, arguing that this would not only soak up the surplus but also magnify the economic and environmental benefits.
"The industry lobby has been pitching for increasing this to 30%," Deccan Herald reported, highlighting the sector’s readiness to ramp up production if given the green light. The technical feasibility, ISMA insists, is no longer in doubt. The infrastructure is in place, the feedstock is available, and the benefits are clear. What’s needed now, they argue, is a policy shift to match the sector’s ambitions.
Of course, the government’s caution is not entirely without reason. Blending more ethanol into petrol raises questions about vehicle compatibility, fuel efficiency, and long-term impacts on food security—especially given that a significant portion of India’s ethanol comes from food grains such as rice and maize. Policymakers must balance the interests of the energy sector, the environment, and the nation’s vast agricultural base.
Still, with more than 450 crore litres of capacity lying unused, the sense of urgency is palpable. The underutilization is not just a missed economic opportunity; it’s a potential drag on India’s efforts to modernize its energy sector and fulfill its climate commitments. The call for ethanol exports, in particular, has gained traction as a practical solution. By tapping into international markets, India could keep its distilleries running, support rural jobs, and earn valuable foreign exchange—all while maintaining its progress on domestic targets.
The numbers tell a compelling story. Blending ethanol into petrol has already helped India save ₹1.55 lakh crore in foreign exchange and boosted farmers’ incomes by ₹1.36 lakh crore. The environmental payoffs are equally impressive, with CO₂ emissions slashed by 790 lakh metric tonnes—again, the equivalent of taking 175 lakh vehicles off the road. These achievements, ISMA argues, should not be put at risk by policy inertia or bureaucratic delays.
It’s a delicate balancing act. On one hand, India needs to ensure that its ethanol program does not undermine food security or drive up prices for staple crops. On the other, the country cannot afford to let its hard-won gains in renewable energy and rural development slip away. The solution, ISMA suggests, lies in a flexible, market-driven approach that allows for both increased domestic blending and access to export markets when surpluses arise.
As the debate continues, one thing is clear: India’s ethanol sector stands at a crossroads. The investments have been made, the infrastructure is ready, and the benefits are there for all to see. What remains to be decided is how best to harness this potential—whether by raising blending targets, opening up export channels, or finding new uses for surplus production.
For now, the industry waits for a policy response that matches its ambitions. As Ballani and other ISMA leaders have made clear, the future of India’s ethanol revolution hangs in the balance, with implications that reach far beyond the distilleries themselves.
With so much at stake—from the livelihoods of farmers to the nation’s energy security and climate goals—the coming months will be critical in determining whether India’s ethanol story continues to be one of progress or becomes a cautionary tale of missed opportunities.
