Govt Relaxes Rules on Ethanol Production, But Only One-Third Comes from Sugar

The government has removed restrictions on ethanol production from sugarcane-based inputs for the 2025-26 season, aligning with the national goal of ethanol blending. However, despite policy support, sugar-based ethanol currently constitutes just 38% of the overall supply, with grains dominating the remainder.

Sugarcane's Limited Role in Ethanol Supply

As per data till July 2025, only 2.74 billion litres of the total 7.23 billion litres of ethanol supplied to oil marketing companies originated from sugar sources. This reflects a 38% share, with grains like rice and maize contributing the remaining 62%. If these proportions remain steady, sugar-based ethanol output could total approximately 3.7 billion litres by the end of Ethanol Supply Year 2025 (ESY25).

Policy Support to Boost Ethanol Production

The removal of restrictions on using sugarcane juice, syrup, B-heavy and C-heavy molasses is expected to create greater production flexibility. This decision aligns with India's E20 rollout target, which envisages 20% ethanol blending with petrol across the nation. Sugar sector players welcomed the move, anticipating improved supply capabilities.

Grain-Based Ethanol Dominates the Mix

Despite increased production potential for sugar mills, grain-based ethanol continues to lead the market. Factors such as the absence of ethanol price revision for the last 2 years have impacted the sugar industry's profitability, making it less appealing to divert sugarcane for ethanol production without adequate economic incentives.

Read More: Ethanol Policy Boosts Sugar Stocks: Avadh, Balrampur Chini, Bajaj Hindusthan, Dalmia Bharat, Shree Renuka Rally Up To 15%!

Input Cost Concerns and Price Challenges

The upward revision of the Fair and Remunerative Price (FRP) of sugarcane has further compressed margins for producers using sugarcane juice or B-heavy molasses routes. Until ethanol prices are adjusted to support viable margins, sugar mills are likely to remain cautious with large-scale sugar diversion.

Conclusion

The government's ethanol policy reforms are a step toward reducing fossil fuel dependency and promoting energy sustainability. However, the dominance of grain-derived ethanol and challenges in sugar-based production highlight the need for broader pricing and input cost adjustments to fully realise the policy's impact.

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