India’s rapidly expanding ethanol industry faces a glut of nearly seven billion litres due to domestic demand lagging behind increased capacity, prompting industry calls for flexible pricing and new markets including exports and alternative fuel uses.
India’s ethanol industry is grappling with a severe oversupply problem, leaving manufacturers hunting for new customers and alternative uses for roughly seven billion litres of output that has no obvious market. The surge in capacity was encouraged by the government’s drive to raise fuel blending and reduce reliance on imported crude, but the expansion has moved faster than domestic demand, according to reporting by The Economic Times and TV9 Hindi. As a result, distilleries are running well below capacity and face a prolonged period of underuse unless fresh demand emerges.
Industry estimates put India’s ethanol production capacity at about 20 billion litres, with another four billion litres expected to be added this year, while the annual requirement for the E20 petrol blending programme is only around 11 billion litres. A further 3 billion to 3.5 billion litres is absorbed by non-fuel users such as spirits, pharmaceuticals and chemicals, leaving a sizeable gap. Senior industry officials told The Economic Times that distilleries are operating at close to 60% of capacity and may only reach 65% to 75% utilisation over the next three years. Maharashtra alone is said to have an estimated surplus of 2.77 billion litres.
The mismatch is already visible in supply data. By August, suppliers had delivered 8.95 billion litres of ethanol to oil marketing companies for fuel blending against contracts for 10 billion litres for the 2025-26 ethanol supply year, according to figures reported by TV9 Hindi and Sugar Times. At the same time, the government has stepped back from any immediate plan to mandate higher-flex blends such as E25 or E30, after consumer complaints about E20. The current roadmap keeps E20 in place until October 31, 2026, and the Centre has told the Supreme Court that the long-term effect of the programme will not be clear until 2027.
With the domestic market saturated, producers are pressing for a more flexible pricing structure and a broader menu of blends. Ravindra Utgikar, chief sales officer at Willow India, told The Economic Times that India should move away from a single mandatory blend and instead price fuels such as E10, E20 and E85 separately, pointing to the model used in the US and Brazil. He argued that a tiered system would let motorists choose fuel based on vehicle age, technology and compatibility, while also widening ethanol use. Industry executives say the sector now needs new buyers, not just more production capacity.
Exports offer only limited relief. India still restricts exports of first-generation ethanol, while second-generation ethanol exports were approved only from September 2025, according to TV9 Hindi. Small volumes of non-fuel ethanol are already being shipped to countries including Tanzania, Angola and Kenya, and the Grain Ethanol Manufacturers Association is in talks with Nepal, which plans a 10% blending mandate but lacks enough feedstock and distillery capacity. Elsewhere, the industry is also looking at ethanol blending in diesel and at bio-isobutanol technology. Ashish Gaikwad of Praj Industries said the company’s bio-isobutanol process is ready for commercialisation, with a first order expected in the current quarter of financial year 2027. He added that even a 2% blend in diesel could open up projects worth more than Rs30 billion.
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