Fueling Growth: Financial Incentives Driving Ethanol Production in India

By Vasu Naren, Chairman & Managing Director, Sona Machinery Limited 

India’s transition to sustainable energy has taken a major leap forward with the rapid scaling up of ethanol production and blending, transforming the landscape of rural development, energy security, and environmental responsibility. Under the visionary leadership of Prime Minister Narendra Modi, the Ethanol Blended Petrol (EBP) Programme has emerged as a cornerstone of India’s biofuel policy, catalyzed by robust financial incentives and regulatory reforms.

Advancing the E20 Target: A Policy Shift

Initially set for 2030, the target of achieving 20% ethanol blending in petrol (E20) was advanced to 2025 by the Cabinet Committee on Economic Affairs (CCEA) in 2020. This bold decision reflects the government’s commitment to fast-tracking clean energy adoption. In response, various government agencies have aligned their efforts to establish a conducive regulatory and retail framework for ethanol-blended petrol.

Central to this drive is the Pradhan Mantri JI-VAN Yojana, which incentivizes second-generation ethanol production from agricultural residues and biomass. This initiative not only supports decarbonization efforts but also bolsters the rural economy by promoting agro-industrial development and creating employment opportunities at the grassroots level.

The ethanol drive has had a profound economic impact. A staggering ₹87,558 crore has been disbursed to farmers, while ₹1,45,930 crore has been paid to distillers, strengthening rural incomes and reinvigorating the agri-based economy. Furthermore, interest subvention schemes for grain-based distilleries have lowered capital barriers, enabling widespread industry participation and investment.

Scaling Up Production Capacity: Industry Collaboration and Regulatory Support

India’s ethanol production capacity has more than doubled in the last four years, reaching 1,623 crore litres as of September 2024. The current capacity comprises 426 crore litres from molasses-based and 258 crore litres from grain-based distilleries. With expansion plans aiming for 760 crore litres and 740 crore litres respectively, India will be well-positioned to meet its projected annual ethanol demand of 1,350 crore litres by ESY 2025.

To support this, the nation will require 60 lakh metric tonnes of sugar and 165 lakh metric tonnes of grains annually—targets that are well within India’s agricultural capabilities.

Furthermore, Oil Marketing Companies (OMCs) have prepared phased roll-out plans for E20, and vehicle manufacturers are committed to aligning their production with ethanol-compatible engines. However, smoother implementation demands regulatory reforms, such as single-window clearances for setting up distilleries and streamlined interstate movement of denatured ethanol.

To ensure that Ethanol Production gets maximum momentum, a nationwide awareness campaign should be conducted to generate consumer support. Educating vehicle owners about the environmental and economic benefits of ethanol-blended petrol—reduced emissions, decreased oil imports, and lower fuel costs—will facilitate broader adoption.

Measurable Progress and a Promising Future

India’s ethanol journey has shown impressive progress—from a 1.53% blending rate (38 crore litres) in ESY 2013-14 to 8.17% (302.3 crore litres) in ESY 2020-21, even as petrol consumption surged by 64%. This momentum showcases the effectiveness of targeted policy, industry alignment, and financial backing.

As India accelerates towards its E20 goals, ethanol production has become more than an energy initiative—it is a strategic growth engine powering rural prosperity, industrial expansion, and sustainable development.

*Views expressed by the author are his own.