New Delhi, Sept. 28 -- India's ethanol industry is facing a major supply-demand imbalance, with nearly 7 billion litres of production capacity currently without a clear market. Producers are exploring new buyers and alternative applications as domestic demand remains significantly below the country's expanding capacity.
India's installed ethanol production capacity has reached around 20 billion litres, while another 4 billion litres is expected to be added this year. However, the E20 blending programme requires roughly 11 billion litres annually, while non-fuel industries such as liquor, pharmaceuticals and chemicals consume another 3-3.5 billion litres.
The mismatch has left distilleries operating at only around 60% of their capacity. Industry officials expect utilisation to remain in the 65-75% range over the next three years. Maharashtra alone is projected to have an ethanol surplus of around 2.77 billion litres.
For the 2025-26 ethanol supply year, which runs from November to October, suppliers had delivered 8.95 billion litres to oil marketing companies by August, against contracted volumes of around 10 billion litres.
The government has also put on hold plans to mandate higher ethanol blending levels such as E25 or E30. The current roadmap remains capped at E20 until October 31, 2026, while the Centre has indicated that the longer-term impact of the programme will become clearer by 2027.
With domestic demand unable to absorb the growing supply, industry players are examining alternative markets. One proposal involves differential pricing for different ethanol blends, including E10, E20 and E85, allowing consumers to choose fuel according to their vehicles' age, technology and compatibility.
Exports, however, are unlikely to provide a major outlet in the immediate term. First-generation ethanol exports remain restricted, while India has permitted exports of second-generation ethanol since September 2025. Limited quantities of non-fuel ethanol are being supplied to countries including Tanzania, Angola and Kenya. Industry representatives are also exploring potential opportunities in Nepal, which plans to introduce a 10% ethanol blending mandate but currently lacks sufficient feedstock and distillation capacity.
Another potential avenue is the use of ethanol-derived products in diesel. The government and industry are examining the possibility of blending bio-isobutanol, or bio-IBA, with diesel. Industry estimates suggest that even a 2% bio-IBA blending mandate could generate project opportunities worth more than Rs 3,000 crore.
Meanwhile, ethanol continues to have substantial demand outside the fuel sector. Undenatured ethanol used in liquor, pharmaceuticals and laboratories accounts for nearly 18.7% of total demand. The extra neutral alcohol market stood at around 3.80 billion litres in 2025 and has been growing at approximately 5% annually, partly driven by consumers shifting from country liquor to Indian-made foreign liquor.
Published by HT Digital Content Services with permission from Millennium Post.