Last year in July, Food Corporation of India (FCI) imposed a ban on rice supply for ethanol production. Though FCI has now lifted the ban, sources said that issues related to supply of rice, a staple food for almost all Indians and many Asians and Africans, have always been a problem area for the ethanol industry.

While traditionally, India has relied on sugarcane and broken rice for ethanol production, it is increasingly looking at maize as an alternative source for production of this key biofuel. However, the problem with maize is that its prices are going up at a rate faster than that of ethanol. 

At present, the amount of ethanol blended into petrol stands at around 16 per cent, up from 1.6 per cent in 2013-14. However, in order to achieve the 20 per cent blending target for 2025-26, India needs to produce more than 1,000 crore litre of ethanol — almost double of what it produced in 2022-23.

Immediate Challenges

In June, the government announced a hike in the minimum support price (MSP) of Kharif crops, including maize. However, while maize has become dearer, ethanol prices haven't increased, leaving manufacturers making ethanol from maize worried. For several producers, losses are mounting due to a price mismatch driven by increased input costs.

The increase in MSP for Kharif crops was aimed at boosting income levels of farmers. Currently, maize prices stand at about Rs 26-28 per kg, compared to Rs 19-20 per kg earlier. However, the price of maize-based ethanol has remained at Rs 71.86 per litre.

According to the Grain Ethanol Manufacturers Association (GEMA), the price of the plant-based fuel must be increased by at least Rs 10 per litre to ensure smooth production.

“We are struggling, and many of us are staring at huge losses, as the ethanol price has not gone up in proportion to the rise in price of maize,” Abhinav Singal, Managing Director of AVJ Group, and committee head and treasurer of GEMA, told The Secretariat.

The company’s grain-based distillery unit in Chhindwara district of Madhya Pradesh started operations last year. Singal is now keen to set up another plant in Kota, Rajasthan. “We are looking to set up another ethanol plant in Kota, Rajasthan, but it is necessary to increase the price of this fuel before we plan ahead,” Singal said.

At present, the country has about 300 grain-based ethanol producers. With a steady increase in demand, the Centre would need more ethanol producers.  

“If the government does not increase ethanol prices, many of the existing manufacturers would face considerable problems... More capacity can't be planned then,” Singal said.

As per GEMA estimates, the total loss incurred by maize-based ethanol producers could touch Rs 5,000 crore a year, if the price of the fuel is not raised. Ethanol producers have made an investment of around Rs 40,000 crore in the last three years, of which the debt component comprises Rs 20,000 crore.  

A report by the US Department of Agriculture noted that in April 2023, India initially reached its current ethanol blending target of E-12, but will be hard-pressed to reach E-20 by 2025.

Dependence On Fossil Fuel

Around 98 per cent of the fuel used in India's road transportation sector comes from fossil fuels, with just 2 per cent met by biofuels like ethanol. The increased use of ethanol will not only boost India’s renewable energy segment, but also save precious foreign exchange. 

As India imports more than 80 per cent of its total crude requirements, increased production of ethanol will help reduce its reliance on oil imports.

The dependence on fossil fuels not only poses challenges related to energy security, but the environmental impact is equally grave. 

In India’s rising energy demand — driven by a growing economy, an expanding population, increasing urbanisation and evolving lifestyles — ethanol plays a critical role. Biofuels including ethanol are more environmentally-friendly and sustainable, contributing to a cleaner energy landscape.

A large number of countries have already pledged to triple the global renewable energy capacity by 2030. For India to keep up its part of the bargain in reducing greenhouse gases, a way has to be found to increase ethanol production in a sustainable manner.

One way could be to import cheaper agricultural crops, which go into ethanol manufacture, or to look within and use plant fiber and carbohydrate-rich municipal waste to build stocks of much-needed bio-fuel.