NEW DELHI: In a significant recalibration of India's ambitious ethanol blending programme, state-run oil marketing companies have decided to keep sugar-based ethanol out of the 2026-27 supply tender entirely, a move aimed at protecting domestic sugar availability even as the country pushes toward its 20 per cent ethanol blending target in petrol.
The tender, issued on October 16 by Bharat Petroleum Corporation Limited (BPCL) on behalf of the public sector oil marketing companies, seeks bids for around 11 billion litres of ethanol for the 2026-27 ethanol supply year, which runs from November 2026 to October 2027. But in a first, the tender document states that no offers will be sought for ethanol produced from sugarcane juice, sugar, sugar syrup or B-heavy molasses.
The document is explicit about the reason: "The Government of India has issued directions that sugar diversion for ethanol be reduced to zero for the ethanol supply year 2026-27." The directive is intended to ensure that the diversion of sugarcane toward fuel does not squeeze domestic sugar supplies or push up sugar prices for consumers.
The eligible feedstocks for the coming year will be maize, broken rice, surplus rice from the Food Corporation of India (FCI), and C-heavy molasses. The shift places the weight of the blending programme squarely on grain-based ethanol, a trend that has been building over the past few years as the government has grown wary of the food-versus-fuel trade-off.
Alongside the feedstock change, the tender also cuts the procurement price for maize-based ethanol from Rs 71.86 per litre to Rs 68.86 per litre, and reduces the incentive component from Rs 5.79 to Rs 2.79 per litre. The reduction signals that the government believes the economics of grain-based ethanol have improved and that lower support prices are now justified.
The decision marks a notable turn in India's ethanol journey. The country achieved its E20 target of 20 per cent ethanol blending in petrol ahead of schedule, a programme that was powered in its early years by sugarcane-based ethanol. Distilleries attached to sugar mills were among the biggest beneficiaries, and the diversion of cane juice and syrup to ethanol became a major source of revenue for the sugar industry.
But that success came with growing concerns. Food economists and consumer groups warned that aggressive diversion of sugarcane to fuel could tighten domestic sugar availability, especially in years of uneven monsoons and lower cane output. The government has already used export restrictions on sugar in recent years to keep domestic prices in check, and the new tender effectively extends that caution to the ethanol programme.
For the sugar industry, the exclusion is a blow. Distilleries that invested in expanding capacity to produce ethanol from cane juice and B-heavy molasses will now have to look for alternative feedstocks or run below capacity. Industry bodies have in the past argued that cane-based ethanol is the most efficient and established route, and are likely to push back against the zero-diversion direction.
For maize growers and the grain-ethanol industry, on the other hand, the tender is good news, though the price cut tempers the celebration. Maize-based ethanol has been the fastest-growing segment of the programme, and the 2026-27 tender cements its central role. The lower procurement price, however, means distillers will need to manage costs carefully, particularly if maize prices firm up.
The move also has implications for India's broader energy security narrative. Ethanol blending is credited with saving the country thousands of crores in crude oil imports, cutting vehicular emissions and providing farmers with an additional income stream. By shifting the feedstock base to grains and C-heavy molasses, the government is betting that the programme can keep growing without competing with the sugar bowl.
Analysts say the real test will be whether grain-based supplies can meet the 11-billion-litre requirement. Maize production in India has been rising, but the blending programme's appetite is enormous, and any shortfall could force the government to revisit its stance or accept lower blending levels in some regions. The use of surplus FCI rice, including broken rice, adds another layer of supply, though that too depends on the corporation's stock position.
The ethanol supply year runs from November to October, and the tender process typically plays out over several months as oil companies negotiate quantities and logistics with distilleries across the country. With the feedstock rules now set, distilleries will be recalibrating their production plans in the coming weeks.
The policy also fits into a larger pattern of the government fine-tuning its biofuel strategy. From differential pricing for ethanol from different feedstocks to periodic reviews of diversion limits, New Delhi has shown a willingness to adjust the programme's levers in response to food security concerns. The 2026-27 tender is the most decisive such adjustment yet.
What remains to be seen is whether the zero-diversion direction is a one-year precaution or the beginning of a structural shift away from cane-based ethanol. For now, the message from the tender is clear: in the contest between sugar on the dining table and ethanol in the fuel tank, the government has chosen the dining table.
Distillery owners across Uttar Pradesh, Maharashtra and Karnataka, the cane belt that powers much of India's ethanol output, will be watching the next steps closely. Many expanded their molasses and juice-based capacity in response to earlier government signals encouraging ethanol production, and the sudden exclusion leaves them with difficult commercial choices.
Whether the government offers any transitional support, or revises the stance in a mid-year review, will determine how much pain the industry absorbs in the coming supply year.
Beyond the industry, the tender will also be felt at the petrol pump in the form of policy continuity. The E20 rollout has already changed what Indian motorists put in their tanks, and oil companies will now lean harder on grain ethanol to keep the blend ratio intact through 2026-27. How smoothly that transition goes will be the real measure of whether the feedstock gamble pays off.
(Reporting based on The Hindu and The Times of India.)