DROUGHT PUTS INDIA’S ETHANOL REVOLUTION ON THE BACK FOOT AS FOOD SECURITY OVERRIDES MODI’S E20 AMBITION

November 4, 2026

India's ambitious drive to achieve a 20 per cent ethanol blending rate in petrol is facing a significant setback as severe El Niño conditions and deficient monsoon rainfall threaten the availability of essential agricultural feedstocks. The country's ethanol blending programme, a major component of Prime Minister Narendra Modi's energy security strategy, could fall below its official E20 target during the current supply year, raising concerns about India's dependence on imported crude oil.

The country's monsoon rainfall was approximately 13 per cent below normal this year, marking the lowest rainfall in more than a decade. The resulting agricultural pressures have severely affected corn and sugarcane availability, while concerns over crop shortages have pushed corn and sugar prices up by approximately 40 per cent to record levels. Rice prices have also increased by around 20 per cent. Retail food inflation accelerated to 7.74 per cent in September, compared with 5.97 per cent in August, intensifying concerns over the affordability of essential food commodities.

Industry estimates suggest that India's ethanol blending rate could decline to approximately 15 per cent during the current supply year, compared with the previous period's 20 per cent achievement. Some ethanol producers anticipate a blending rate between 15 and 17 per cent, depending largely on corn prices and the availability of alternative feedstocks. The development represents a reversal of the progress achieved by the government, which had reached its 20 per cent blending milestone approximately five years ahead of schedule.

The emerging crisis has also exposed a fundamental conflict between food security and fuel production. With India being the world's most populous country, agricultural commodities must increasingly be prioritised for human consumption during a drought year. Although government-held rice stocks could provide an alternative source for ethanol production, diverting the grain towards biofuel manufacturing would carry substantial financial implications. The government currently sells rice to ethanol producers at approximately half the price it pays to procure and store the commodity.

The ethanol industry is also facing pressure from changes in government procurement policy. The Centre has directed oil marketing companies not to purchase ethanol produced from sugar-based feedstocks during the new supply season. In addition, the procurement price of corn-based ethanol was reduced from ₹71.86 to ₹68.86 per litre, squeezing the profit margins of distilleries. Producers have increasingly turned towards damaged grains for biofuel manufacturing, raising additional concerns about the availability of animal feed.

The consequences could extend beyond agricultural markets. Ethanol manufacturers have invested heavily in expanding production capacity to approximately 20 billion litres annually, anticipating sustained growth in demand under the E20 programme. A substantial reduction in blending requirements could leave the industry with significant excess capacity, placing financial pressure on companies that borrowed extensively to expand their facilities.

Corn production itself could decline by as much as 15 per cent from the previous record of 55 million metric tonnes, according to industry estimates. Drought conditions across several agricultural states have also weakened the prospects of increased winter cultivation, as farmers face inadequate water availability despite elevated market prices.

The potential slowdown in ethanol blending carries wider implications for India's energy security. The E20 programme has reportedly saved approximately ₹2 trillion in oil import expenditure since 2014, with annual savings estimated at ₹430 billion when the 20 per cent blending rate is maintained. A sustained decline in domestic ethanol production could therefore increase India's exposure to international crude oil markets, particularly during periods of geopolitical uncertainty and volatile energy prices.

The programme has also faced criticism from motorists and automobile manufacturers over concerns regarding fuel efficiency and possible engine wear. Following public concerns, the government has indicated that it has no immediate plans to increase ethanol blending beyond 20 per cent.

With several states scheduled to hold Assembly elections in early 2027, rising food prices have acquired additional political significance. The government must now confront a difficult policy choice: maintaining ambitious biofuel production targets or protecting agricultural supplies and controlling food inflation. India's ethanol ambitions, once presented as a major achievement in reducing dependence on imported petroleum, are increasingly being tested by the vulnerability of agricultural production to climate conditions.