New Delhi, Sep 23: India’s ethanol industry is heading towards a crucial growth phase, with demand projected to reach 17.9 billion litres by FY31 if ethanol blending rises to 25 per cent. The expected increase could push utilisation of the country’s existing distillation capacity close to full levels, creating a stronger focus on efficiency, feedstock availability and future investment.
India currently has around 18.25 billion litres of installed distillation capacity. Under an E25 blending scenario, demand could absorb nearly 98 per cent of this capacity by FY31. If blending remains at E20, demand is estimated at around 14.3 billion litres, translating into utilisation of approximately 78 per cent.
The industry could, however, face a significantly different investment requirement if blending moves towards E30. Under that scenario, ethanol demand could rise to around 21.5 billion litres by FY31, roughly 18 per cent above current installed capacity. Such a trajectory could shift the sector from maximising existing plants to building fresh distillation capacity.
The changing demand outlook is also reshaping the industry’s raw-material mix. Grain-based ethanol accounted for 72 per cent of allocations in ESY26 Cycle 1, compared with 28 per cent for sugar-based routes. Maize alone accounted for 45.7 per cent of allocations, highlighting its growing role in the country’s ethanol supply chain.
For producers, however, higher demand also brings the challenge of managing production costs. EBITDA margins of grain-based distilleries declined from 9.2 per cent in FY21 to 6.7 per cent in FY25, indicating continued pressure from feedstock costs. This makes efficient sourcing and better utilisation of existing plants increasingly important for the industry’s next phase.
The ethanol programme has already transformed India’s biofuel landscape. Government data shows that ethanol blending in petrol increased from below 1.5 per cent in 2013-14 to 20 per cent in 2025-26, while production capacity expanded from 421 crore litres in 2014 to about 2,000 crore litres in 2026. The expansion has also helped reduce dependence on imported crude oil and support domestic renewable fuel production.
With the E20 milestone largely achieved, the industry’s focus is now moving towards higher capacity utilisation, feedstock optimisation and better returns from existing assets. Emerging applications such as sustainable aviation fuel could also create additional avenues for the sector.
The projected rise in ethanol demand could therefore have implications well beyond fuel blending. It could support investment across distilleries, feedstock supply chains, agriculture-linked businesses and biofuel technologies. At the same time, the pace of future blending and the availability and cost of feedstock will remain important factors in determining how quickly the industry expands.
For India, the next phase of ethanol growth is increasingly about making existing capacity work harder today while preparing for the additional infrastructure that could be required tomorrow.