India Looking to Add More Ethanol to Petrol While Facing Sugar Crisis

India is facing an unusual policy dilemma in its sugar and ethanol sectors. Last month, the country moved towards importing sugar after a decade amid a domestic supply crunch that was partly linked to the diversion of sugarcane towards ethanol production.

Now, the government is considering allowing ethanol blending in petrol to go beyond the current E20 level.

The proposed next phase of ethanol blending would be tied to flex-fuel vehicles, according to Tarun Kapoor, Advisor to the Prime Minister.

He said the government is looking at higher blending levels as domestic ethanol production capacity has surpassed the quantity currently required for E20 blending.

The Sugar-Ethanol Trade-Off

India's ethanol programme has relied heavily on sugarcane-based feedstock. The increased diversion of sugarcane juice and B-heavy molasses towards ethanol has reduced the amount of sugar that can be produced from the crop.

That pressure was reflected in the domestic sugar market last month. India made way to import raw sugar after a decade, with the supply squeeze linked partly to aggressive diversion of sugarcane towards ethanol, along with lower-than-expected cane production and reduced inventories.

The government had also moved to protect domestic supplies by prohibiting sugar exports, while considering duty-free imports to replenish stocks.

Sugar prices surged sharply in August, with Gujarat retail rates reaching around ₹60 per kg for regular sugar and ₹65 per kg for refined sugar. Traders had also warned that prices could touch ₹70 per kg ahead of the festive season if supplies remain tight.

The Centre responded by easing rules for duty-free sugar imports. The earlier October 31 deadline for processing and selling imported raw sugar was replaced with a rolling two-month window linked to the date of each consignment’s Bill of Entry. 

The move came after tightening domestic supplies, falling inventories, festive demand and the diversion of part of the sugarcane crop towards ethanol production put pressure on the sugar market.

Now, Ethanol Production Is Outpacing Current Demand

The situation on the ethanol side has now changed.

Kapoor said ethanol production has exceeded what is currently required for petrol blending. With E20 already achieved, the government is looking for ways to absorb the additional production rather than allow ethanol capacity to remain underused.

The next step under consideration is higher-than-E20 blending through flex-fuel vehicles. These vehicles are designed to operate on higher ethanol-petrol blends, unlike conventional vehicles that use the existing E20 fuel.

Could Higher Blending Put More Pressure On Sugar?

This is where the policy trade-off becomes significant.

If higher ethanol demand leads to greater use of sugarcane-based feedstock, it could potentially compete with sugar production for the same crop. That comes at a time when India has already experienced a tightening sugar supply situation and has moved towards imports.

However, the government's current approach is not based only on diverting more sugarcane into ethanol.

Officials are also looking at expanding ethanol use beyond petrol, including industrial applications, clean cooking and compressed biogas. Experiments with biofuel-based additives such as isobutanol are also being explored for the diesel sector.

The Next Challenge: Balancing Food And Fuel

The emerging question for India is therefore not simply how much ethanol it can produce, but how that production should be balanced against sugar requirements.

The country has already achieved E20 and now has ethanol capacity beyond its present blending needs. At the same time, the sugar sector has faced tighter supplies after cane was diverted towards ethanol.

With the government now looking beyond E20, the balance between food, fuel and farmer returns could become increasingly important as India's biofuel policy enters its next phase.