New Delhi: India’s ethanol blending programme, a central plank of the country’s energy security strategy, has delivered substantial economic and environmental gains, but the latest Economic Survey has cautioned that existing policy settings could create lasting distortions in agriculture if they are not periodically recalibrated.
As of August 2025, the programme had helped save more than Rs 1.44 lakh crore in foreign exchange and substituted around 245 lakh tonnes of crude oil. It has also reduced emissions and increased payments to farmers, the Survey said. With India moving toward its target of blending 20 per cent ethanol with petrol, known as E20, the scope of the programme has widened beyond sugar-based feedstocks to include food grains, particularly maize. The Survey warned that biofuel mandates combined with feedstock-specific administered pricing can unintentionally reshape cropping patterns. Drawing on international experience, it noted that durable and concentrated incentives often favour certain crops over others, with implications for agricultural diversity, food prices and long-term food security.
India mandates ethanol blending and annually fixes per-litre ethanol prices by feedstock, with assured offtake by oil marketing companies. Between FY22 and FY25, the administered price of maize-based ethanol increased at a compound annual growth rate of 11.7 per cent, faster than ethanol derived from rice or molasses. This pricing structure, alongside technological advances in cultivation, has strengthened incentives for maize.
Maize production and cultivated area expanded at CAGRs of 8.77 per cent and 6.68 per cent, respectively, between FY22 and FY25. National maize yields rose from about 2.56 tonnes per hectare in FY16 to around 3.78 tonnes per hectare by FY25, a jump of nearly 48 per cent. Over the same period, yields of several pulses, oilseeds and millets stagnated or declined. By contrast, the area under oilseeds grew at a modest CAGR of 1.7 per cent, while cereals excluding maize expanded at 2.9 per cent. Pulses recorded declines in both output and acreage. The Survey said the shift was particularly visible in states such as Maharashtra and Karnataka, where maize is increasingly competing with pulses, oilseeds, millets, soybean and cotton for land, water and labour. The policy was partly designed to encourage farmers to move away from water-intensive paddy cultivation, but the Survey noted that a meaningful reduction in paddy acreage has not occurred.
The analysis cited projections by the OECD-FAO, which attribute much of global cereal yield growth to technological improvements, making crops such as maize attractive even without policy support. When combined with administered ethanol pricing, these trends can permanently alter crop choices if left unchecked. As the ethanol blending programme matures, the Survey called for a comprehensive policy roadmap that takes a holistic view of both energy and food security. Suggested measures include accelerating yield improvements in pulses and oilseeds to restore their relative profitability, avoiding distortions in input and output markets that favour specific ethanol feedstocks, and planning the expansion of ethanol crops in line with regional resource endowments.
Such an approach, the Survey said, would retain the economic rationale for ethanol expansion while ensuring that energy security goals are not pursued at the cost of food security or nutritional outcomes.