India’s ethanol blending programme is at a crossroads. With production capacity running at roughly double the current consumption level and global crude prices surging past USD 110 a barrel amid the war in the Middle East, the Indian Sugar & Bio-Energy Manufacturers Association (ISMA) is making a pointed case: the country must move beyond E20, and it must create the right policy environment for flex-fuel vehicles to scale.
In an interview with Autocar India, ISMA director general Deepak Balani laid out the association’s position and the hard numbers behind it.
- Higher ethanol blends in petrol could further affect fuel efficiency
- Older vehicles remain at risk for accelerated wear and tear
- Higher ethanol blending being pushed to compensate for overcapacity
An overcapacity crisis in the making
India can currently produce nearly 2,000 crore litres of ethanol annually, with an additional 400 crore litres of capacity set to come online next year. Against that, consumption at the E20 blending level stands at approximately 1,100 crore litres, meaning only around 50 percent of the installed capacity is being utilised.
“Most of the distilleries in the country will run under capacity, which is economically not viable for the industry,” Balani said, noting that this situation has been compounded by government incentives that encouraged capacity build-out without corresponding policy support on the consumption side.
Exports are not a realistic short-term fix, either. India’s sugarcane-based ethanol production costs are structurally high because feedstock prices are set by the government. Balani added that the Fair and Remunerative Price (FRP) paid to sugarcane farmers accounts for roughly 75 percent of production costs. “We pay the highest for our sugarcane to the farmer in the world,” Balani noted, making Indian ethanol uncompetitive against, say, US corn-based ethanol, which is not subject to equivalent price controls.
Pushing for E22 blends
Rather than a leap to E27, ISMA is advocating a measured step to E22 as an immediate interim measure. Balani argues the transition is technically straightforward. Vehicles with E20 compliance – mandatory for all new vehicles sold after 2023 – can handle higher blends without recalibration.
“From E20 to E22 should not be a problem. There is scientific evidence. Some tests have been done by ARAI (Automotive Research Association of India) also,” he said, drawing on Brazil’s experience where E20-compliant vehicles comfortably absorbed blends of 22-25 percent. For ethanol producers, the numbers make a compelling economic case. Moving from E20 to E22 would immediately absorb an additional 150 crore litres of ethanol.
On the fuel-efficiency debate, which has been a flashpoint on social media and consumer forums, Balani pushed back on what he called “misinformation”, though he acknowledged some drop. “ARAI, along with OEMs, said the mileage drop is around 5-6 percent, and that is also on the component of 20 percent ethanol. So overall, the impact comes down to around 2-3 percent,” he argued. He attributed part of the efficiency loss reported by consumers to vehicle maintenance rather than ethanol content per se.
Autocar India’s own tests, however, recorded drops of up to 12 percent on older or less optimised vehicles on the E10-to-E20 transition, a gap that Balani did not fully contest, acknowledging that older vehicles and engine calibration are real variables.
The bigger play: Flex-fuel vehicles and a path to 40-50 percent blending
ISMA’s longer-term vision is not just about incremental blending hikes; it is about establishing flex-fuel vehicles as a mainstream alternative powertrain, much like Brazil has done, where 90 percent of the fleet is now flex-fuel. According to the latest industry data from ANFAVEA (the Brazilian Association of Automotive Vehicle Manufacturers) for the full year of 2025, flex-fuel vehicles accounted for 74.4 percent of all new light vehicle registrations.
For that to happen, Balani identified two non-negotiables: competitive pricing for E100 fuel and an end to the cost premium on flex-fuel vehicles over equivalent ICE models.
On pricing, he outlined the math: at a weighted average ethanol cost of Rs 67 per litre, with 5 percent GST and dealer margins, E100 at the pump should land at around Rs 80-82 per litre, making it cheaper than current petrol prices, especially with crude above USD 100 a barrel.
“If the government is able to rationalise GST on E100 and we can bring the cost of E100 fuel from Rs 95 to around Rs 80-82, and with a flexible engine costing the same as an ICE engine, I think things can really move,” he said.
There are early policy signals. The draft CAFE-3 norms, yet to be formally notified, include super-credit provisions of 2.5 for biofuel vehicles, which will be a meaningful incentive for OEMs. NITI Aayog’s recent Net Zero report also explicitly recognises flex-fuel vehicles as a clean pathway. “These are recognitions by the highest body of the planning commission,” Balani noted.
The OEM relationship: cautious, work in progress
The auto industry’s concerns are well-documented. E20 was effectively imposed over OEM objections, and another blending hike means further recalibration costs at a time when the industry is already navigating EV transition expenditures.
Balani acknowledged the friction. “We are in discussions with almost all the OEMs. We are also in discussions with SIAM (the Society of Indian Automobile Manufacturers) and ACMA (the Automotive Component Manufacturers Association of India), and we are trying to see how we can come on the same page,” he said, adding that a collaborative pathway was the goal rather than another imposition.
For the older vehicle parc, the segment most vulnerable to higher blends, Balani pointed to a flex-fit retrofit kit tested with IIT Delhi as a potential solution, though it must be noted that this project is still at the pilot stage.
2026 will be an inflection year
With India’s ethanol industry straining with overcapacity, crude prices elevated by the war in Iran and the prime minister having publicly cited the programme’s import-substitution impact in Parliament (4.5 crore barrels of crude avoided through E20 blending, by ISMA’s reckoning), Balani believes 2026 could mark a turning point.
“The government is looking at how to really increase the consumption of ethanol and how to reduce the dependence [on crude imports]. I believe the government will, in 2026, take some concrete steps to increase the consumption of ethanol,” he said.
The pathway ISMA is advocating is a two-track one: a near-term, low-friction move to E22 for the existing fleet, combined with a decisive policy push on GST, vehicle pricing parity and CAFE credits, to make flex-fuel vehicles commercially viable at scale.
Whether the government moves on both fronts, advancing E22 in the near term while laying the groundwork for flex-fuel adoption, and how the auto industry responds will determine whether India’s considerable ethanol bet actually delivers on its energy-security promise.
A higher ethanol blend will, however, come with inevitable trade-offs. Fuel efficiency will drop further, and increased ethanol content can accelerate wear and tear because of its corrosive nature, especially in older vehicles and poorly maintained engines.
Most manufacturers have already future-proofed engines and fuel systems of current cars to be materially compliant with E30, anticipating the long-term roadmap. However, proper calibration for running on E22-E30 blends will only follow once those fuels are commercially available.
The industry had initially petitioned the government to retain E10 as the baseline, a position that was overruled when E20 became standard, and now the baseline is being pushed up yet again. What that new floor will be remains unclear, with the government pressing for ever-higher blends while automakers warn of real-world hardship for motorists in the form of lower mileage, potential reliability issues and higher ownership costs. In this tug-of-war between policy ambition and technical pragmatism, the average motorist’s concerns remain worryingly low on the priority list, even though they are the ones ultimately paying both at the pump and in the workshop.
With inputs from Mugdha Mishra