Ethanol production capacity continues to rise, yet distillery utilisation is expected to remain under pressure as supply outpaces demand. Fresh production units are coming online even as ethanol procurement by state-run oil marketing companies (OMCs) is projected to grow only marginally this year. Industry executives warn that excess supply is beginning to strain the sector, particularly with the 20% ethanol blending mandate effectively capping demand.
Rising Capacity, Slower Demand Growth
India’s current annual ethanol production capacity stands at around 18 billion litres. However, this figure is set to increase to approximately 21 billion litres once plants under construction become operational.
Sanjay Khanna, interim CEO of Bharat Petroleum Corporation Limited (BPCL), acknowledged that ethanol availability has risen sharply, creating fresh industry challenges. He noted that supply growth is outpacing the absorption capacity of the fuel retail system.
In the ethanol year that ended in October 2025, oil companies blended around 11 billion litres of ethanol. For the current ethanol year, which began in November, oil marketing companies expect demand to range between 11 and 12 billion litres, largely in line with petrol consumption growth.
Oil Marketing Companies Face Absorption Limits
Government-owned fuel retailers — Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited, and Indian Oil Corporation Limited — procure ethanol for blending with petrol under the 20% mandate.
Although petrol sales have grown by approximately 6% this financial year, ethanol demand will likely expand at a similar pace. However, this growth remains significantly lower than the projected increase in production capacity. As new distilleries begin operations, oil companies plan to source ethanol from both older and newly commissioned units. Consequently, older plants may face declining capacity utilisation rates.
20% Blending Target Sets a Ceiling
Producers have urged OMCs to increase offtake to ease supply pressure. However, oil companies have limited flexibility, as the 20% blending requirement effectively caps ethanol absorption. While policymakers previously discussed raising the blending target beyond 20%, progress slowed after social media concerns emerged about potential engine damage in vehicles not designed for higher ethanol blends. Although the government dismissed these concerns, it has not announced further increases in the blending mandate.
Price and Efficiency Concerns Add Complexity
Motorists have also called for a price reduction for ethanol-blended petrol, citing lower energy efficiency. Ethanol contains roughly one-third less energy than pure petrol, and a 20% blend is estimated to reduce fuel efficiency by around 6%. However, the oil ministry rejected calls for price adjustments, stating that ethanol remains more expensive than petrol, making price cuts commercially unviable.
Balancing Energy Security and Market Stability
India’s ethanol blending programme aims to reduce crude oil imports by partially substituting petrol with domestically produced biofuel. At the same time, it supports sugarcane and maize farmers by creating a steady demand base. Yet, as capacity expands rapidly and demand growth remains capped at 20% blending, the industry now faces a balancing act. As reported by chinimandi.com, without policy changes or higher fuel consumption growth, distilleries may continue to operate below optimal levels, intensifying financial pressure across the sector.
