The Centre’s decision to lift ethanol production caps from sugarcane sources for ESY 2025–26 is set to boost fuel availability and support India’s E20 blending goals. While it strengthens energy security, the move also pressures automakers to adapt to ethanol’s impact on drivability, efficiency, and engine durability.
03 Sep 2025 | 9663 Views | By Shahkar Abidi
The Central government has lifted all restrictions on ethanol production from sugarcane sources for the 2025-26 Ethanol Supply Year (ESY), a move set to bolster fuel supplies amid the country's ambitious ethanol blending targets with petrol.This policy shift, detailed in a recent notification, could push up the automotive fuel landscape ...
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The Central government has lifted all restrictions on ethanol production from sugarcane sources for the 2025-26 Ethanol Supply Year (ESY), a move set to bolster fuel supplies amid the country's ambitious ethanol blending targets with petrol.This policy shift, detailed in a recent notification, could push up the automotive fuel landscape by ensuring abundant ethanol for petrol mixes, though it raises questions about vehicle performance and industry adaptations.
The Notification: Breaking Down the Government's Green Light
On September 1, 2025, the Department of Food and Public Distribution issued a key notification allowing sugar mills and distilleries to produce ethanol without any volume caps during the Ethanol Supply Year (ESY) 2025-26, which spans November 2025 to October 2026. Specifically, production is permitted from sugarcane juice, sugar syrup, B-heavy molasses (a sugarcane byproduct with high sugar content), and C-heavy molasses (a lower-sugar variant), reversing earlier curbs imposed due to limited sugarcane availability.
The policy includes safeguards: the department, in consultation with the Ministry of Petroleum and Natural Gas, will routinely monitor sugar diversion to ethanol to avertdomestic sugar shortages and curb price spikes. This comes after a ESY 2024-25 cap of 40 lakh tonnes of sugar for ethanol, and follows two years of heavymonsoons that have improved sugarcane yields. India, which stands among the top two sugar manufacturers globally, had earlier bought in the restrictions due to a drop in sugarcane supplies.
The timing aligns with oil companies preparing tenders for ethanol supplies, aiming to support the national targetof 20% ethanol blending in petrol, known as E20, five years ahead of its earlier deadline of 2030. Furthermore, the government also seems to be in a hurry to move the ethanol blending levels to E27 and later to E30 by the end of the current decade.
Boosting Ethanol Supply Chains
This unrestricted access to sugarcane-based feedstocks is expected to ramp up ethanol output significantly, building on India's progress where blending averaged 19.05% as of July 2025. For the automotive fuel sector, it means a more reliable domestic supply of ethanol, reducing reliance on imported oil and potentially stabilizing fuel prices. Oil marketing companies, which blend and sell the fuel, could see enhanced logistics through expanded storage and transport, supporting nationwide E20 availability.
Automotive Industry Implications: Opportunities and Challenges Ahead
The government champions ethanol blending as a dual panacea: a critical step to slash India's colossal crude oil import bill, which exceeds $ 130 billion (over Rs 1.1 lakh crore) every year, thereby bolstering energy security against geopolitical uncertainties. Official figures claim over Rs 24,300 crore of savings in foreign exchange in the ethanol supply year 2022-23. Beyond economics, ethanol, derived from crops, is touted as a cleaner-burning, low-carbon fuel that supports the rural economy.
However, ethanol blends can reduce fuel efficiency by, leading to higher per-kilometre costs and more frequent refueling, particularly in older models not optimized for such fuels. This has sparked consumer backlash, with reports of engine issues like corrosion and abnormal combustion. Anecdotal reports suggest efficiency losses of 15-20%, although official Automotive Research Association of India (ARAI) tests indicate a smaller dip of 1-6%, varying by vehicle.
Facing mounting criticism, the automotive sector organised a joint press conference featuring SIAM, ARAI, and petroleum industry representatives to address concerns. They dismissed consumer complaints as "misinformation, and misunderstanding," claiming that mileage drops could also result from poor maintenance, bad driving habits, or vehicle age.
Way forward
On the innovation front, the policy could accelerate the shift to flexible-fuel vehicles, which adapt to varying ethanol levels, potentially opening new markets and revenue streams for the industry. Yet, it may increase production costs as companies retrofit engines and materials for ethanol compatibility, while navigating potential rises in warranty claims. Overall, this ethanol abundance supports India's energy security but pressures the sector to balance environmental gains with practical drivability concerns.