Ethanol Blending Policy India: Trade-offs for Food Security – Economic Survey 2025-26 Analysis
India's ethanol blending programme has emerged as an important pillar of the nation's energy security strategy, delivering tangible gains in crude oil substitution and foreign exchange savings. However, the Economic Survey 2025-26 raises important questions about emerging trade-offs between energy security and food security as the programme expands. This article examines the ethanol blending policy, its achievements, and the policy challenges that require careful navigation.
Understanding Ethanol Blending
Ethanol blending involves mixing ethanol, a biofuel produced from agricultural feedstocks, with petrol used in vehicles. The blended fuel reduces dependence on imported crude oil, provides additional income to farmers through feedstock procurement, and offers environmental benefits through lower tailpipe emissions.
India's ethanol blending programme aims to achieve E20, meaning 20 per cent ethanol blended with 80 per cent petrol, across the country. This target has been advanced from the original timeline of 2030 to 2025-26, reflecting the government's commitment to energy security and reduced import dependence.
Historically, India's ethanol production was based primarily on molasses, a byproduct of sugar manufacturing. However, meeting E20 targets requires significantly more ethanol than molasses alone can provide. This has led to diversification of feedstock to include food grains, particularly maize and surplus rice.
Achievements of the Programme
The Economic Survey 2025-26 documents substantial achievements of the ethanol blending programme. As of August 2025, ethanol blending has saved India more than Rs 1.44 lakh crore in foreign exchange by substituting about 245 lakh metric tonnes of crude oil that would otherwise have been imported.
These savings are significant for India's external sector. India imports over 80 per cent of its crude oil requirements, making it vulnerable to global oil price fluctuations and supply disruptions. Every litre of ethanol blended reduces this import dependence and the associated foreign exchange outflow.
The programme has also created additional income streams for farmers. Procurement of feedstock for ethanol production provides an assured market at administered prices. Sugar mills benefit from an alternative use for their byproducts during periods of excess sugar production. Maize farmers have gained a new bulk buyer for their produce.
Environmental benefits include reduced greenhouse gas emissions from the transport sector. Ethanol is a renewable fuel whose carbon emissions are partially offset by the carbon absorbed by crops during growth. While not carbon-neutral, ethanol blending reduces net emissions compared to pure petroleum fuels.
The Emerging Food Security Concern
The Economic Survey 2025-26 identifies emerging trade-offs that warrant policy attention. As blending targets rise towards E20, the programme has necessarily expanded beyond traditional sugar-based feedstock to include food grains, particularly maize. While this diversification has enabled rapid scaling, recent evidence suggests that administered ethanol pricing is increasingly reshaping agricultural incentives.
The concern centers on how ethanol pricing interacts with underlying technological changes in maize cultivation. Hybrid maize varieties have achieved dramatic productivity gains, with yields rising from about 2.5 tonnes per hectare two decades ago to 6-8 tonnes per hectare in high-productivity states. These productivity gains make maize a naturally attractive crop for farmers relative to many other cereals and pulses.
However, the Economic Survey 2025-26 notes that ethanol pricing has begun to reinforce and accelerate this shift. The government annually fixes administered per-litre ethanol prices differentiated by feedstock, with assured offtake by Oil Marketing Companies. A feature of the pricing structure is that maize-based ethanol receives a higher price per litre compared to rice-based or molasses-based ethanol.
Between FY22 and FY25, the administered price of maize-based ethanol increased at a CAGR of 11.7 per cent, growing materially faster than ethanol derived from rice or molasses. This has created a strong and persistent price signal favouring maize cultivation.
Cropping Pattern Distortions
The Economic Survey 2025-26 documents evidence that ethanol pricing is affecting cropping patterns. In states like Bihar, maize area has expanded significantly in recent years. In one documented case, maize area in a district rose by 157 per cent over three years, displacing masoor dal cultivation.
This expansion of maize at the expense of pulses and other crops has implications for food security and nutrition. India already faces chronic deficits in pulses, requiring substantial imports to meet domestic demand. If maize expansion further reduces pulse cultivation, import dependence for pulses will increase.
The irony is that while ethanol blending reduces oil import dependence, the resulting cropping pattern shifts may increase food import dependence. This represents a trade-off between Aatmanirbharta (self-reliance) in energy and Aatmanirbharta in food, as the survey puts it.
The survey notes that similar dynamics have been observed internationally. OECD-FAO analyses of biofuel programmes in major economies show that biofuel mandates and feedstock-specific price incentives can lead to long-term alterations in cropping patterns and food price dynamics when not periodically recalibrated.
The Pricing Mechanism Challenge
The root of the issue lies in the administered pricing mechanism for ethanol. While intended to provide farmers with steady and fair income, the differentiated pricing creates incentives that may not align with broader food security objectives.
When maize-based ethanol commands a higher price than alternatives, farmers rationally respond by growing more maize. This response may be individually optimal but collectively suboptimal if it leads to food grain shortages in other categories.
The survey notes that the concentration and durability of incentives may unintentionally favour one set of crops over others. A farmer considering whether to grow maize or pulses compares not just market prices but also the assured offtake for maize-based ethanol at premium prices. This tilts the decision towards maize even if pulse prices are otherwise attractive.
Countries with mature biofuel regimes have increasingly relied on adjustment mechanisms, feedstock caps, or a shift towards second-generation biofuels to mitigate competition with food crops. The Indian experience now displays similar early warning signals that may require policy attention.
Second-Generation Biofuels: A Potential Solution
One path forward highlighted by the Economic Survey 2025-26 is accelerating the shift to second-generation biofuels. Unlike first-generation ethanol made from food grains or sugar, second-generation biofuels use agricultural waste and residues as feedstock.
Second-generation ethanol can be produced from crop residues like rice straw and wheat straw that are currently burned in fields, causing air pollution. Bagasse from sugar mills, corn stover, and other agricultural waste can also serve as feedstock. This approach addresses the food versus fuel dilemma by using waste rather than food crops.
Several second-generation ethanol plants are being established in India with government support. However, the technology is more complex and capital-intensive than first-generation production. Scaling up second-generation capacity will take time and investment.
In the interim, the policy challenge is managing first-generation ethanol expansion without distorting food markets. This requires careful calibration of pricing incentives and potentially capping the use of food grains for ethanol.
Regional Implications
The ethanol blending programme has different implications across India's diverse agricultural regions. States with surplus sugar production, like Maharashtra and Uttar Pradesh, benefit from molasses-based ethanol that provides an outlet for byproducts.
States with high maize productivity, like Bihar, Madhya Pradesh, and Karnataka, have seen rapid expansion of maize-based ethanol capacity. While this provides farmers in these states with additional income, it also creates the cropping pattern concerns discussed above.
States that are net food grain importers may face higher prices as production is diverted to ethanol. The consumer impact of ethanol blending depends on whether displaced food production is offset by productivity improvements elsewhere or leads to price increases.
Policy Recommendations in the Survey
The Economic Survey 2025-26 suggests several policy approaches to address the emerging trade-offs. Key elements of a comprehensive roadmap could include accelerating yield improvements in pulses and oilseeds to restore their relative profitability, avoiding distortions in input and output markets that confer undue advantage to specific feedstocks, and enabling targeted, planned growth of ethanol feedstocks aligned with regional resource endowments.
The survey emphasizes that such an approach would preserve the economic logic of ethanol expansion while ensuring that energy security objectives are pursued without unintentionally weakening food security or nutritional outcomes.
Periodic recalibration of ethanol pricing is implicit in this recommendation. If maize-based ethanol prices have grown faster than alternatives, adjusting relative prices could reduce the incentive distortion. Similarly, procurement support for pulses could offset some of the competitive disadvantage created by assured ethanol offtake.
Global Context: Lessons from Other Countries
India can learn from international experience with biofuel programmes. Brazil's ethanol programme, the world's largest, is based primarily on sugarcane and has been generally successful. However, Brazil's abundant land and different crop economics limit the applicability of its model to India.
The United States' corn-based ethanol programme has faced criticism for contributing to food price increases and environmental concerns. The corn ethanol mandate has been credited with raising corn prices globally, affecting food prices in importing countries.
The European Union has moved towards advanced biofuels and imposed limits on crop-based biofuel use. This reflects recognition that biofuel mandates can have unintended consequences for food security and land use.
India's programme operates in a more food-insecure environment than these developed country examples. The stakes are higher, and the need for careful calibration is greater.
UPSC Relevance: Biofuel Policy
Biofuel policy connects multiple UPSC topics:
- GS-III: Energy security, agriculture, environment
- Economy Optional: Agricultural policy, pricing mechanisms
- Environment: Renewable energy, emissions reduction
- Current Affairs: Government policies, trade-offs
Practice MCQs on Ethanol Blending - Economic Survey 2025-26
Q1. According to Economic Survey 2025-26, ethanol blending has saved India approximately:
(a) Rs 50,000 crore in foreign exchange
(b) Rs 1.44 lakh crore in foreign exchange
(c) Rs 2.50 lakh crore in foreign exchange
(d) Rs 5 lakh crore in foreign exchange
Answer: (b) Rs 1.44 lakh crore in foreign exchange
Q2. India's ethanol blending target is known as:
(a) E10
(b) E15
(c) E20
(d) E25
Answer: (c) E20 – 20 per cent ethanol blending with petrol
Q3. According to Economic Survey 2025-26, the administered price of maize-based ethanol grew at a CAGR of:
(a) 5.7 per cent
(b) 8.5 per cent
(c) 11.7 per cent
(d) 15.2 per cent
Answer: (c) 11.7 per cent between FY22 and FY25
Q4. The Economic Survey 2025-26 identifies a trade-off between:
(a) Growth and inflation
(b) Energy security and food security
(c) Employment and wages
(d) Exports and imports
Answer: (b) Aatmanirbharta in energy and Aatmanirbharta in food
Q5. Second-generation biofuels differ from first-generation in using:
(a) Better quality food grains
(b) Agricultural waste and residues
(c) Imported feedstock
(d) Chemical synthesis
Answer: (b) Agricultural waste and residues like crop straw
Conclusion
The ethanol blending programme represents an important energy security initiative, but the Economic Survey 2025-26's analysis highlights emerging trade-offs that require policy attention. The programme has delivered tangible benefits in crude oil substitution and foreign exchange savings. However, administered ethanol pricing, particularly for maize-based ethanol, is beginning to distort cropping patterns in ways that could undermine food security. The challenge for policymakers is preserving the programme's gains while addressing these distortions through price recalibration, feedstock diversification, and acceleration of second-generation biofuel development. This nuanced analysis exemplifies the kind of policy trade-off assessment that UPSC aspirants should master for comprehensive examination answers.