The Central government has been promoting ethanol blending under its Ethanol Blended Petrol (EBP) programme. A policy momentum is building up.

Sujata Sharma, Joint Secretary, Ministry of Petroleum and Natural Gas, said last week, “The time has arrived. By blending (ethanol), we are saving on imports. Stakeholder consultations are going on. The government is trying to bring all the stakeholders together. Automobile companies have to keep the vehicles ready, and oil marketing companies have to be ready to supply the fuel.”

The statement came right after Union Minister of Road Transport and Highways Nitin Gadkari said that the country needs to target 100% ethanol blending in petrol to become energy self-reliant.

Hardeep Singh Puri, Minister of Petroleum and Natural Gas, has also said that the EBP initiative has delivered significant gains, helping India reduce foreign exchange outflow by over 1.4 lakh crore so far.

But the transition raises an urgent question: can India’s auto and fuel ecosystem keep pace with an ambition shaped as much by global energy insecurity as by domestic readiness?

Real World Friction

As the government prepares for a dedicated policy for higher blending, this transition does not come without challenges. Many vehicles are not fully compatible with higher ethanol blending.

India has made strategic progress on ethanol blending, moving from below 2% blending around 2013-14 to a 20% blending target – E20 - by 2025-26. The government has mandated that petrol sold in India be E20 compliant from 1 April 2026.

Oil marketing companies such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum have already expanded blending supply lines and adjusted refinery-to-retail logistics to meet this mandate.

All vehicles being manufactured from April 2023 are certified as E20 compatible, including vehicles from auto majors such as Maruti Suzuki, Tata Motors, Hyundai, and Mahindra.

However, the readiness is missing.

Sourav Mitra, Partner, Oil and Gas, Grant Thornton Bharat, suggests that ethanol’s calorific value is about 27%-30% lower than petrol, and industry-linked tests indicate a 5%-8% drop in fuel efficiency at E20.

This has raised concerns about operating costs.

“Ethanol is hygroscopic (tends to absorb moisture) and mildly corrosive, which can accelerate wear and tear in fuel lines, pumps, and seals, especially in older vehicles tuned for E10, E5, or pure petrol. While new generation E20-ready cars are engineered to withstand this, consumer awareness, retrofit-risk communication, and clarity on warranty terms remain weak links,” Mitra said.

India is largely ready on the supply side, with ethanol surplus scenarios also developing, but the real-world friction points are performance, durability perception, and bottom-line economics for the average user

– Sourav Mitra, Partner, Oil and Gas, Grant Thornton Bharat

India’s ethanol compatible vehicle base exceeds 300 million units. But the vast majority of these were designed for E10 or lower blends and are not really designed for long-term E20 use. While these vehicles can technically run on E20, prolonged use may reduce fuel efficiency and increase wear and tear on older fuel-system components, especially in non-updated systems.

The Society of Indian Automobile Manufacturers (SIAM) is reported to have suggested that consumers should be compensated for E10 and E20 to offset the marginal drop in the fuel efficiency. However, the government has not yet come up with any such incentive.

SIAM, however, did not respond when The Secretariat reached out.

Systemic Vulnerability

India’s timeline for large-scale flex-fuel adoption is strategically sound but difficult to execute, with risks in feedstock, water, food security, and infrastructure synchronisation.

According to the Department of Food and Public Distribution (DFPD), India’s total ethanol production capacity as of November 2025 is about 1,990 crore litres.

A large share of current ethanol production is still based on sugarcane molasses and first-generation (1G) routes, which are water-intensive and geographically concentrated in states like Maharashtra and Uttar Pradesh.

Sugarcane-based systems present a challenge to water security, raising concerns in drought-prone and water-stressed belts.

Further, the government has begun using surplus rice and other foodgrains to produce ethanol. “This introduces trade-offs between fuel security and food security, besides the fiscal cost of procurement and subsidies,” Mitra said. 

Second-Generation (2G) Ethanol

Second-generation (2G) ethanol from agricultural residues is the cleaner, more sustainable option, but current capacity is still small, capital intensive, and logistically complex, with limited infrastructure for feedstock collection.

So, while the direction is right - leveraging domestic agriculture to reduce oil-import dependence and emissions - the timelines for large-scale flex-fuel adoption may present certain on-ground challenges.

Deepak Ballani, Director General, Indian Sugar & Bio-energy Manufacturers Association (ISMA), however, believes that it is possible.

He said that if annual car sales are considered to be of around 45 lakh units and it is assumed that about 50% transition to FFVs, the projected ethanol demand by 2030 could be in the range of 400 crore litres. On the supply side, sugar biorefineries today represent a production capacity of nearly 900 crore litres. Even after meeting existing allocations for the E20 blending programme and other industrial uses, a substantial surplus of around 600 crore litres remains available. "This surplus is more than adequate to meet the projected demand arising from the adoption of FFVs," he said.

He said that the key building blocks are already in place. The ethanol industry is ready with adequate fuel availability, and Original Equipment Manufacturers (OEMs) are prepared to roll out FFVs at scale.

“The more critical enabler at this stage is long-term policy clarity — particularly on pricing, taxation, and regulatory support — to unlock and sustain private investment across the value chain,” Ballani said.

What It Means For EVs

Experts say ethanol is unlikely to derail electric vehicle (EV) adoption, but may reshape its trajectory.

Flex-fuel vehicles (FFVs) need incremental engineering, that is, corrosion-resistant fuel system materials, upgraded seals, and recalibrated engine control units. This leads to a modest production cost increase of roughly ₹5,000 to ₹12,000 per vehicle for two-wheelers and ₹17,000 to ₹25,000 per vehicle for four-wheelers, as per various industry estimates. That is far below the typical ₹1.5 lakh to ₹3 lakh premium seen on mass market EVs, which is typically attributed to battery packs.

In heavy and inter-city vehicle segments, where EV dynamics remain challenging, ethanol could dominate. But in intra-city mobility — two-wheelers, ride-hailing and last-mile delivery vehicles — EVs continue to hold a clear advantage.

“India will expand ethanol-distillation, agri-feedstock processing, and blending infrastructure, while separately investing in lithium-pack manufacturing, charging grids, and battery-recycling ecosystems,” Mitra told The Secretariat.

“The outcome is not likely to be a winner-takes-all scenario but segmentation. FFVs will anchor long-haul, rural, and price-sensitive segments, while EVs may be expected to have an edge in urban, premium, and short-range applications.”

Sravan K. Appana, CEO of EV manufacturer iGowise Mobility, said ethanol blending does not pose any real risk to EV adoption.

“In fact, the biggest gains from blending are likely to come in heavy and inter-city use cases such as cars, commercial trucks, buses, and vans, where charging downtime and vehicle cost remain major barriers. But in light EV use cases, the economics of electric mobility are simply hard to beat,” he said.