India’s Ethanol Blending Target Faces Setback as El Niño Puts Food Security First

India’s drive to replace imported oil with home-grown biofuel faces a setback as the lowest monsoon rainfall in more than a decade hits corn and sugarcane crops, forcing New Delhi to prioritise food security over ethanol production.

The proportion of ethanol in Indian petrol is poised to fall below the official 20 per cent target in the supply year that began this month, industry insiders say, reversing gains made after the government achieved the milestone some five years ahead of schedule.

A sustained drop in ethanol use would undermine one of Prime Minister Narendra Modi’s signature energy-security programmes and leave India more reliant on overseas crude at a volatile time for energy prices amid persistent geopolitical uncertainty.

The E20 initiative has saved nearly ₹2 lakh crore ($21.1 billion) in oil import costs since Modi came to power in 2014, according to government data, with annual savings estimated at ₹43,000 crore at the 20 per cent ethanol blending rate.

However, a severe El Niño this year cut India’s monsoon rainfall by nearly 13 per cent from normal levels, and concerns about crop shortages sent corn and sugar soaring some 40 per cent to hit record highs, while rice — another ethanol feedstock — climbed 20 per cent. Retail food inflation accelerated to 7.74 per cent in September from 5.97 per cent a month earlier.

The scarcity of feedstocks could push India’s ethanol blending rate down to around 15 per cent in the current supply year from the previous period’s 20 per cent, said GK Sood, Chairman of agribusiness company KN Agri Resources and one of India’s top food policy experts.

“India is the world’s most populous country, so food has to take priority over fuel, more so in a drought year,” he said.

Lower blending would squeeze producers who borrowed heavily to expand capacity to about 20 billion litres a year in anticipation of rising ethanol demand, resulting in significant overcapacity. Four producers, speaking on the condition of anonymity, expect blending to fall to 15 per cent to 17 per cent in the current supply year, depending largely on corn prices.

Food inflation remains a sensitive topic with several states due to hold assembly elections in early 2027, including Uttar Pradesh. The E20 initiative has also faced scrutiny regarding fuel efficiency and engine wear, prompting the government to emphasize that it has no plans to increase the ratio above 20 per cent.

The government recently directed oil companies not to procure any ethanol made from sugar-based feedstocks for the new supply season and cut the purchase price of corn-based ethanol to ₹68.86 per litre from ₹71.86. Meanwhile, corn production is likely to fall by as much as 15 per cent from this year’s record of 55 million metric tonnes, with winter acreage unlikely to pick up due to water shortages.

"This situation highlights the delicate balance governments must maintain between ambitious green energy targets and fundamental domestic needs like food security. When climate factors disrupt key agricultural supply chains, national policy naturally pivots to protect consumers from inflation and scarcity. For businesses and manufacturers operating in the biofuel and agricultural sectors, this regulatory shift underscores the importance of supply chain resilience and adaptability in the face of weather-related vulnerabilities." — Dr. Shishir Gupta, Founder & CEO, StartupLanes