The sugar industry in India had long been synonymous with cyclical crises — glut years followed by scarcity, delayed farmer payments, and mill closures. However, this narrative is being rewritten. The government's audacious ethanol blending program has not merely provided a lifeline to sugar mills; it has fundamentally reshaped the industry's DNA, turning it into an indispensable pillar of India's energy security.
The Indian government has allowed free use of sugar, inter alia, all types of molasses for ethanol production, starting November 1. The government contemplates diverting 40 Lakh Metric Ton (LMT) of sugar for ethanol production allowed for the Ethanol Supply Year (ESY) 2025-26.
With soaring energy demand in India, doubling down on ethanol blending could be a shot in the arm.
When the National Policy on Biofuels was launched in 2018, few could have predicted its tectonic impact. The bold target of achieving 20% ethanol blending in petrol by 2025-26—advanced from the original 2030 deadline—is seen by many as throwing the kitchen sink. That said, India achieved an average blending rate of 19.05% as of July 2025; besides, ethanol blending of 19.93% was achieved in July 2025. The target appears not just achievable but a testament to industry adaptation and policy coherence.
The Government of India has been on a spree:
India has rolled out an administered price mechanism for Ethanol procurement under the Ethanol Blended Petrol (EBP) Programme.
The Goods and Services Tax (GST) rate on ethanol supplied for the Ethanol Blended Petrol (EBP) Programme was formally reduced to 5%.
There have been Long Term Offtake Agreements (LTOAs) between Oil Marketing Companies (OMCs) and Dedicated Ethanol Plants, inter alia, to boost ethanol storage capacity and ethanol availability.
The government introduced a host of Ethanol Interest Subvention Schemes from 2018 to 2022 for Ethanol production from molasses and grains.
India rolled out “Pradhan Mantri JI-VAN Yojana,” to provide financial assistance for setting up Advanced Biofuels projects in the country using lignocellulosic biomass and other renewable feedstock. It is expected to buttress 2G bio-ethanol production. In August 2024, the Cabinet extended the implementation deadline of the scheme by five years (till 2028-29).
The E20 program could save India billions of dollars while combating pollution and other environmental challenges. This represents a seismic shift from an industry that was perpetually seeking government bailouts to one that contributes to national objectives.
The relentless monsoon rains have boded well for the sugar industry, which could be raking in USD 102.32 billion in revenue by 2030. To put things in perspective, India houses around 263 molasses-based distilleries with a combined ethanol production capacity of 620 liters, notes the Times of India (September 3, 2025). The diversion of 4 million tons of sugar for ethanol production could touch 4.5 to 5 million tons, according to an interview article on CNBC TV18 (September 6, 2025).
The sugar industry has attracted over ?40,000 crore in investments since 2018, leading to a 140% surge in India’s ethanol production capacity, reports the Economic Times (September 21, 2025), citing the Indian Sugar & Brio-Energy Manufacturers Association (ISMA).
Sugar mill operators and sugarcane cultivators are bullish on ethanol. For instance, Nitin Gadkari, Union minister for road transport and highways, asserts that ethanol can help reduce import dependence (India imports fossil fuels of ?22 lakh crore annually) and offer stability to the sugar industry.
In essence, sugarcane-based ethanol supply surged to almost 670 crore liters in FY24 from 40 crore liters in FY14, states an article on The Hindu (August 18, 2025). The area under sugarcane cultivation (in 2025) is likely to be 57.24 lakh hectares against 57.11 lakh hectares last season. Indeed, farmers count on the crop as a source of stable income on the back of Fair and Remunerative Pricing. Predominantly, an OECD-FAO Agricultural Outlook report expects India to use 22% of its sugar production for ethanol production by 2034.
These numbers tell a compelling story.
With India marching towards the 2070 net-zero commitment, ethanol blending could be the apple of the eye. According to PIB, the EBP Programme has led to a net CO2 reduction of about 736 lakh metric tons and substitution of more than 244 lakh metric tons of crude oil. Add to it the EV trend that will ramp up decarbonization goals and further reduce emissions.
An article published in the Times of India (February 7, 2023) cites the Central Committee’s report, claiming that ethanol-blended gasoline can reduce carbon monoxide emissions in two-wheelers and four-wheelers by 50% and 30%, respectively. Meanwhile, hydrocarbon emissions are cut by 20% compared to normal gasoline.
The shift to ethanol-blended fuel has bolstered foreign exchange and energy security. The Economic Times, citing a senior minister, inferred that India saved foreign exchange (Rs. 1.44 lakh crore) by reducing dependence on imported crude oil. In an era of volatile global energy prices and supply chain uncertainties, the domestic production capacity of sugarcane-based ethanol provides crucial strategic depth.
The recent decision to remove all quantitative restrictions on ethanol production from sugarcane feedstock for 2025-26 exhibits the government's confidence in the sector's capacity and its importance to national energy security.
The success of the ethanol program demonstrates how strategic policy can create value for farmers, industry, and the nation while advancing multiple policy objectives simultaneously. It is to see if the government will focus on expanding blending targets beyond 20%, expedite flex-fuel vehicle adoption, and ensure price mechanisms that sustain farmer incomes and mill viability. The success achieved so far provides a strong foundation for these next steps.
It is high time stakeholders ensure that the sweet spot between agricultural prosperity and energy independence becomes a permanent feature of India's economic landscape.
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