India’s fuel policy is undergoing a quiet but deliberate shift. Petrol at pumps across the country now contains more ethanol than ever before—not as a climate gesture, but as a strategic recalibration of how India manages its energy security, rural economy, and urban environment.

By March 2025, the government hit its E20 blending target—20% ethanol in petrol—five years ahead of schedule. Average blending levels stood at 17.98% in February 2025, up from 14.6% the year before, according to official data.

The next target, already in sight, is a 30% blend (E30) by 2030.

Behind the push lies a strategic policy bet that domestic ethanol can help India cut costly crude oil imports, reduce greenhouse gas emissions, and build a parallel income stream for farmers.

ECONOMICS OF ETHANOL

India imports more than 85% of its crude oil, making it vulnerable to global supply shocks and dollar volatility. By substituting a portion of petrol with ethanol, a domestically produced biofuel, the government is looking to blunt the impact of these external risks.

Since 2014, the ethanol blending programme (EBP) has helped India save over Rs 1.36 lakh crore in foreign exchange and replace nearly 193 lakh tonnes of crude oil, according to the Ministry of Petroleum and Natural Gas.

OMCs (Oil Marketing Companies) have also spent more than Rs 1.18 lakh crore buying ethanol directly from farmers, and nearly Rs 1.96 lakh crore from distilleries.

These purchases have created a stable downstream market for surplus crops, particularly sugarcane and grains, anchoring what the government calls a “rural bioeconomy.”

States like Maharashtra, Uttar Pradesh, and Karnataka have seen ethanol-linked investments flow into rural districts, supporting agro-processing and distillery jobs.

ENVIRONMENTALLY BETTER

The environmental case is equally critical. A Ministry of Petroleum tweet earlier this year highlighted that ethanol—whether made from sugarcane, surplus rice, maize, or agri-residue—replaces fossil-based petrol and emits significantly less carbon dioxide.

A life-cycle analysis by NITI Aayog found that greenhouse gas emissions from sugarcane-based ethanol are 65% lower than petrol, while maize-based ethanol cuts emissions by 50%.

With ethanol-blended petrol now common in cities like Delhi, Mumbai, and Kanpur, the transition is beginning to reflect in improved urban air quality metrics, particularly in lower CO and unburned hydrocarbon emissions.

BUT THERE ARE CHALLENGES

Scaling ethanol, however, comes with trade-offs. Sugarcane is water-intensive. Diverting foodgrain stock for fuel raises food security questions. And the 2030 target of producing 1,700 crore litres of ethanol annually will test both the sustainability and logistics of the system.

The government says it is addressing this by expanding feedstock sources—adding damaged grains, surplus stocks, and promoting second-generation (2G) biofuels made from agricultural residue.

But sector watchers caution that the success of E30 will depend on water-use efficiency, robust food-stock management, and a viable price formula for farmers and distillers alike.

PROTECTION AGAINST EXTERNAL SHOCKS

Ultimately, ethanol-blended petrol is being positioned as part of a broader shift toward energy self-reliance. As global oil prices remain unpredictable and climate deadlines loom, India is betting that biofuels can insulate its economy from external shocks while building new domestic value chains.

Whether that bet pays off depends not just on how much ethanol gets blended into petrol, but how sustainably and equitably that blending is scaled.

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