India's ethanol programme started as a waste story. C-heavy molasses (the dark, viscous residue left after sugar mills extract every crystal they can) had limited commercial uses and plenty of volume. Fermenting it into fuel was elegant: a byproduct of an existing industry becomes a strategic asset, no new farmland required, no competition with food. In the early years of blending, this was the entire pitch. Cheap feedstock, circular economy, national interest. The story held because the numbers were small.
That version of the programme ended around 2022. In the current ethanol supply year, grain-based distilleries have delivered roughly 480 crore litres of ethanol, against about 238 crore litres from sugarcane. Of India's installed distillation capacity of roughly 1,810 crore litres, 858 crore litres is grain-based, against 816 crore litres from molasses. The programme that began with leftovers now runs on the harvest.
The shift happened in stages, each one moving further from the byproduct model. First came B-heavy molasses, extracted earlier in the refining process, which yields more ethanol per tonne of cane but diverts sugar. Then sugarcane juice, skipping sugar production entirely. Then maize. Then rice, routed through the Food Corporation of India at prices that reward surplus disposal over economic logic. Each step up the feedstock ladder delivered more volume. Each also changed what the programme actually is: its economics, its water consumption, its fiscal architecture, its political risks.
This matters because grain ethanol and molasses ethanol are different industries wearing the same label. They have different cost structures, different water footprints, different political constituencies, and different failure modes. Understanding India's ethanol future requires understanding this feedstock pivot, not as a technical input decision, but as the single most consequential policy variable in the programme.
Molasses hit a ceiling
Molasses has a volume ceiling, and India hit it.
C-heavy molasses yields about 220 to 225 litres of ethanol per tonne. India's sugar industry produces a finite quantity each season, tied to sugarcane acreage and crushing capacity. The NITI Aayog roadmap, published in June 2021, projected ethanol demand rising from 173 crore litres in 2019-20 to about 1,016 crore litres by 2025-26, the volume needed for 20% blending nationwide. Molasses could supply perhaps half of that. The other half had to come from somewhere.
B-heavy molasses and sugarcane juice were the first expansion. These yield more ethanol per tonne of cane, but at a cost: you forgo sugar to make them. The government set higher administered prices for these feedstocks to compensate mills for the lost sugar revenue. This was the programme's first departure from the waste-utilisation model. Ethanol was now competing with sugar production rather than living alongside it.
Grain changed the arithmetic entirely. Maize delivers 380 to 460 litres of ethanol per tonne. Rice delivers 450 to 480. These yields are roughly double what C-heavy molasses provides. A grain-based distillery also runs year-round without dependence on a four-month crushing season, which means steadier supply and higher capital utilisation.
The capacity build was rapid. The Department of Food and Public Distribution ran an interest subvention scheme offering 6% per annum or 50% of the bank's interest rate, whichever was lower, on loans for new or expanded distillery capacity. The tenure was five years including a one-year moratorium. By June 2025, 499 distilleries held roughly 1,822 crore litres of capacity. This was not just the target met; it was the target overbuilt. Demand at 20% blending is about 1,016 crore litres.
The speed made operational sense. The unasked question was whether the feedstock mix behind that capacity made economic sense.
Rs 71.7 at one end, Rs 126 at the other
CEEW's true-cost analysis for ethanol supply year 2024-25 does what the administered pricing system is designed not to do: it counts what the country actually pays for each litre of ethanol, across all the ministries and budget heads where the costs are scattered.
The results are not subtle.
Oil marketing companies pay between Rs 60 and Rs 72 per litre depending on the feedstock, under administered prices set by the government. But the true cost to the country, including fertiliser subsidies for the crop, electricity subsidies for irrigation, FCI under-recoveries, concessional lending, and foregone tax revenue, is substantially higher for every feedstock, and dramatically higher for grain.
The gap between what the OMC pays and what the country pays is the implicit subsidy. For C-heavy molasses, the gap is modest and the economics are tolerable. For cane juice and maize, it is larger but arguable on strategic grounds. For FCI rice at Rs 126 per litre, the gap is roughly Rs 66 on every single litre, more than the sticker price itself. The programme's shift toward grain is a shift up a cost curve that nobody presents in full.
This cost gradient should determine the feedstock hierarchy. It does not, because each feedstock serves a different political objective, and the subsidy is fragmented across enough ministries that no single budget line carries the headline number.
Sugarcane takes roughly 70% of Maharashtra's irrigated water
The cost chart measures what the programme takes from the budget. The water chart measures what it takes from the ground.
NITI Aayog's own figure (published in its 2021 ethanol roadmap, not an activist's claim) puts sugarcane ethanol at about 2,860 litres of water per litre of fuel produced. The number comes overwhelmingly from cultivation, not from the distillery. Sugarcane grows for 12 to 18 months, demands flood irrigation across most of India, and occupies about 4% of Maharashtra's farmland while consuming roughly 70% of its irrigated water.
Rice ethanol is worse by a wide margin. With 2.5 to 3 kilograms of paddy required per litre of ethanol, and water consumption above 4,000 litres per kilogram of paddy, the total water footprint exceeds 10,000 litres per litre of fuel. In human terms: one litre of rice ethanol embodies more than six months of one person's domestic water supply in many Indian cities, where per-capita daily availability runs to 40 or 50 litres.
Maize is substantially less water-intensive. It needs three to four irrigations per growing cycle, against up to 22 for rice in Punjab and 25 to 30 for sugarcane in Maharashtra. This advantage is real and large.
The geography makes the water problem structural. India's ethanol programme has concentrated in exactly the states where water is most constrained: Maharashtra for sugarcane, Punjab and Haryana for rice, Uttar Pradesh for both. Distilleries follow their feedstock, and feedstock follows decades-old cultivation patterns. The Central Ground Water Board's 2025 assessment recorded annual groundwater recharge of about 448.52 billion cubic metres against extractable capacity of roughly 407.75 billion cubic metres. Several districts in the ethanol belt are classified as over-exploited.
Fabio Scarpare of Washington State University, commenting on recent research for Mongabay India, framed the tension precisely: "If higher ethanol demand encourages more irrigated sugarcane in already stressed basins, the climate benefit at the tailpipe could be offset by water depletion." The programme does not eliminate an environmental cost. It relocates it from exhaust pipe to aquifer.
What do you call buying at Rs 42 and selling at Rs 22?
The most contested feedstock route runs through the Food Corporation of India, and the facts are not in dispute. They were disclosed in a Rajya Sabha reply.
FCI's average acquisition cost for rice is Rs 37.20 to Rs 38.89 per kilogram. It then sells surplus stocks to distillers at Rs 22.50 to Rs 23.20 per kilogram under the Open Market Sale Scheme, approximately 40% below acquisition cost. In the thirteen months to June 2026, FCI supplied 6.35 million tonnes for ethanol, at a disclosed fiscal cost of Rs 14,597 crore.
The government maintains this is not a subsidy. The sale price is the administered OMSS rate, and the transaction is lawful, documented, and disclosed. The economics are unchanged by the label. A fixed price 40% below acquisition cost is a transfer, flowing from FCI's books, and from the taxpayer, to ethanol distillers.
The policy rationale is surplus disposal. FCI rice stocks have chronically run at roughly three times the buffer requirement. Storage costs Rs 4,294 per quintal in FCI's own accounting. Rice deteriorates in godowns, losing nutritional value, attracting pests, eventually becoming unfit for distribution. Diverting it to ethanol rather than letting it rot is a reasonable argument, narrowly considered.
Ashok Gulati of ICRIER disagrees with the framing. He calls rice-to-ethanol diversion "the most irrational policy that the government has." The state procures dear and sells cheap; the spread is funded from the public purse. If the objective is farmer income, there are cheaper instruments. If the objective is cheap ethanol, rice is the most expensive route. The policy satisfies neither objective efficiently.
When CEEW puts the true cost of rice ethanol at Rs 126 per litre against molasses at Rs 71.7, the feedstock choice costs the country Rs 54 more per litre. At the volumes India is producing, that number runs into thousands of crores annually. The surplus-management argument may have some merit for a finite stock of ageing grain, but it does not sustain a permanent production pathway.
Five scenarios, one constant
A July 2026 paper in PLOS ONE by researchers from IIM Ahmedabad, the Potsdam Institute for Climate Impact Research, and the Sustainable Development Solutions Network ran five feedstock scenarios to 2050 using the MAgPIE integrated assessment model. The results are worth attention because they quantify what the policy debate has left vague.
In the all-molasses scenario (scaling ethanol production entirely on sugarcane) the model projects sugarcane area expanding from about four million to 101 million hectares by 2050. Nitrogen fertiliser application surges approximately 600%. Food prices rise roughly 49% by 2030. Sugar surpluses reach about 710 million tonnes by 2030 and 1,640 million tonnes by 2050. These are extreme projections of extreme assumptions, useful less as forecasts than as markers of where the boundary conditions sit.
Direct sugarcane juice conversion, by contrast, keeps food prices near baseline and cuts sugar surpluses by 70 to 90%.
Water consumption rises 49 to 138% above baseline across all scenarios. Even the least damaging pathways show agricultural water demand increasing by roughly half. This finding is consistent regardless of the feedstock chosen: scaling first-generation ethanol means scaling the cultivation behind it, and cultivation means water.
The paper's most useful insight is also its simplest. The trade-off is not intrinsic to ethanol. It is intrinsic to feedstock choice. The policy variable that matters most is which feedstock gets the incentive. An ethanol programme is only as sustainable as the crop it runs on.
The Economic Survey 2026 acknowledged the tension in its own terms: "an emerging tension between self-reliance in energy and self-reliance in food." When the Finance Ministry's own annual survey names the problem, the window for treating scrutiny as sabotage has closed.
Brazil added corn. The US hit a wall. The EU pulled back.
India is not the first country to discover that feedstock determines whether an ethanol programme works or unravels. Three precedents offer direct lessons. Each made the feedstock choice under different constraints, and each illustrates a different failure mode.
Brazil launched Proalcool in 1975 and today runs roughly 80% on sugarcane. This is possible because Brazil has about 851 million hectares of land and a fraction of India's population density. Sugarcane yields of 80 to 90 tonnes per hectare deliver an energy return above 6.5, meaning the fuel produces more than six times the energy used to make it. When corn ethanol entered the Brazilian mix, it came from the safrinha (the second harvest planted after soybeans), meaning it did not displace first-crop food production. RenovaBio, introduced in 2017, created a tradable carbon credit system (CBIOs) that rewards low-carbon-intensity production and reduces dependence on direct subsidies. The Brazilian programme evolved from government-driven mandate to market-driven mechanism over four decades. India's programme, by contrast, runs entirely on administered prices.
The United States runs on corn. About 40% of the US corn crop goes to ethanol, enabled by the Renewable Fuel Standard and a subsidy architecture that has been contested since its inception. The "food vs fuel" debate is well-rehearsed: corn ethanol contributed to the 2007-08 global food price spike, and the blend wall (the point where ethanol supply exceeds what E10 blending can absorb) has physically constrained further growth. US corn yields of about 11 tonnes per hectare are three times India's maize yields, which moderates the land pressure. The lesson: even with the world's most productive corn belt, feedstock competition with food creates political constraints that eventually cap the programme.
The European Union took a different trajectory. After initially promoting crop biofuels, the EU introduced a 7% cap on food-crop biofuels under the Renewable Energy Directive (RED III) and is phasing down high indirect land-use change (ILUC) feedstocks. Palm oil was effectively phased out by 2024. The EU's framework now prioritises advanced biofuels from waste and residues. The lesson: Europe tried first-generation biofuels at scale, measured the land-use and food-price consequences, and pulled back. India is scaling first-generation capacity at the same time Europe is winding it down.
The common thread is that feedstock choice is not permanent. Brazil added safrinha corn. The US hit the blend wall and is exploring cellulosic alternatives. The EU reversed course entirely on first-generation biofuels. India's feedstock mix is still fluid, which means the window for correction is open. But it narrows each year as capital locks into grain-based distillery capacity with 20-to-30-year payback assumptions.
India became a net corn importer
Maize in India is primarily animal feed. About 24.2 million tonnes went to poultry in 2025, where feed constitutes 60 to 70% of production cost. When ethanol began drawing heavily on maize, the competition became visible in the poultry value chain before it showed up in the national statistics.
Maize-to-ethanol volumes went from about one million tonnes in 2022 to over six million in 2024. In the same period, India's maize exports fell from 1.9 million tonnes to 0.5 million. Maize imports reached 0.9 million tonnes, flipping the country to a net importer for the first time in two decades. Corn exports fell 86% between 2020 and 2024. Reported prices moved from roughly Rs 15,000 to Rs 25,000 per tonne.
Somewhere in this sequence, a fuel policy quietly became an egg-price policy. The transmission chain from maize diversion to poultry feed cost to retail egg and chicken prices is not abstract. It runs through real markets with real households at the end.
The Observer Research Foundation added another dimension in October 2024, calling the food-crop-ethanol-import pattern a "self-goal" for energy security. The argument is arithmetic: India diverts domestic grain to ethanol to reduce crude oil imports, then imports the same grain from abroad. Every tonne of imported feedstock leaks foreign exchange back out, eroding the net forex saving that justifies the programme. The gross forex saving from ethanol blending is about Rs 1.90 lakh crore cumulative. The net saving, after accounting for feedstock and ethanol imports, is smaller. The government does not publish the net figure.
Stop the rice, fund the maize
The data points in a clear direction. Whether policy follows it is a different question.
Stop the FCI rice route. Rice ethanol costs Rs 126 per litre, uses above 10,000 litres of water per litre of fuel, and runs on a fiscal transfer that no amount of relabelling can make efficient. The surplus-management argument holds for a finite clearing operation, not a permanent production pathway. There are cheaper ways to manage rice surpluses than converting subsidised grain into fuel at a cost the country does not honestly report.
Invest in maize productivity. Indian maize yields average about 3.5 tonnes per hectare. The United States produces 11. That yield gap is the programme's opportunity. Reaching six to eight tonnes per hectare through better seed technology, precision agriculture, and extension services would make maize ethanol competitive without the subsidy structure that props up rice and sugarcane. Maize is the least water-intensive major feedstock, the most amenable to year-round production, and the one where India has the most room to improve. Gulati's prescription flows directly from this arithmetic: back the feedstock that can scale without breaking either the budget or the water table.
Accelerate second-generation ethanol. India generates an estimated 500 million tonnes of crop residue annually. Tens of millions of tonnes burn in the northern plains each winter, choking Delhi and surrounding cities. Converting even a fraction to ethanol would reduce stubble burning, avoid food-chain competition, and produce fuel from a genuine waste stream. The EU has already capped first-generation biofuels at 7% and is redirecting incentives toward waste and residues. India's 2G demonstration plants have been slow to reach commercial scale, but the technology exists and the feedstock is, quite literally, going up in smoke. Locking in first-generation capacity while the world moves to second-generation is a risk India does not need to take.
Publish feedstock-wise true costs annually. CEEW has done the analysis. The government should make it official. The current opacity, where the subsidy is distributed across petroleum, food, fertiliser, and finance ministries, prevents honest comparison. If rice ethanol at Rs 126 per litre were publicly benchmarked against molasses at Rs 71.7 in an annual government report, the policy conversation would sharpen overnight. Transparency does not require a policy change. It requires a spreadsheet.
The feedstock pivot is not a footnote to India's ethanol story. It is the story. A programme that began by fermenting the sugar industry's waste now runs primarily on grain. Grain that could feed poultry, grain procured at prices the country cannot defend, grain irrigated with water the country does not have enough of.
Whether this lands as a defensible strategic hedge or an indefensible subsidy structure depends on what goes into the fermenter. India has the data, the models, and the global precedents to make this choice well. The evidence is not ambiguous. The CEEW costs are published. The MAgPIE projections are in a peer-reviewed journal. The FCI rice numbers were disclosed in Parliament. The water footprint is in NITI Aayog's own roadmap.
What the programme needs is not more research. It is the political willingness to read its own evidence and act on it. The feedstock mix is the live policy variable. Treating it as a settled input decision rather than the programme's most important ongoing choice is how a defensible hedge becomes an indefensible subsidy.