India’s Ethanol Boom Hits a Speed Bump: 20 Billion Litres of Capacity vs 11 Billion Litres of E20 Demand

As per news report, India's ethanol industry is facing a supply glut that threatens to impact investments in the sector once considered central to the country's green energy transition. Installed capacity has significantly outpaced the current requirement for mandatory 20% ethanol blending with petrol (E20). 

Ethanol Capacity Exceeds E20 Blending Requirement by Over 50% 

India's ethanol industry currently has nearly 20 billion litres of installed capacity, with another 4 billion litres slated to come onstream soon.  

Against this, the requirement for mandatory 20% ethanol blending with petrol (E20) is estimated at just about 11 billion litres in the current ethanol year that began November 2025.  

This represents more than 50% excess capacity building up in the system. Distilleries are utilising just 25% to 30% of capacity, while fresh approvals for new plants have been halted. 

According to the All India Distillers' Association, ethanol has evolved into a ₹50,000 crore industry, propelled by the government's ambitious plans for the sector.  

During 2024-2025, around 100 new distilleries started operations, with a few more still being commissioned. However, demand growth has not kept pace, as ethanol offtake remains largely dependent on existing blending targets. 

Challenges in Raising Blending Targets 

Raising the blending target beyond the current 20% presents multiple challenges. Discussions among policymakers stalled after social media backlash over potential damage to vehicles not designed to run on higher ethanol blends.  

Drivers have also sought price discounts for ethanol-blended fuel, citing its lower energy content, approximately one-third less than pure petrol.  

The oil ministry rejected this demand in August 2025, stating ethanol was costlier than petrol.  

There is no clarity from the government toward higher blends such as E27, E85, or E100, nor any clarity on timelines for expanding blending into diesel. 

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Diesel Blending and Automaker Position 

Diesel represents the next potential frontier but presents technical challenges. Unlike petrol, ethanol does not mix with diesel, forming 2 separate layers and requiring a coupler chemical to keep them mixed.  

Indian Oil Corporation and Bharat Petroleum Corporation are understood to be at advanced stages of evaluating ethanol-blended diesel formulations.  

Automakers argue there is no firm direction on moving beyond E20 toward high-ethanol blends that would require widespread adoption of flex-fuel vehicles.  

No mass-market flex-fuel vehicles have been introduced by top carmakers, with most remaining at prototype stages.  

Maruti Suzuki, Tata Motors, Toyota Kirloskar Motor, and Mahindra and Mahindra have demonstrated flex-fuel prototypes, but commercial rollout awaits policy support. 

Conclusion 

India's ethanol industry faces a supply glut with 20 billion litres capacity against 11 billion litre E20 requirement, leading to under-utilisation and stalled investments. Technical challenges in diesel blending, lack of clarity on higher blending targets, and automaker wait for policy direction have created uncertainty across the sector. 

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