Ensuring Fairness in Ethanol Procurement: Why Existing Capacity Must Come First
India’s achievement of 20 percent ethanol blending has marked a major transition in its energy strategy. However, as the country moves into the post-E20 phase, a new challenge has emerged at the core of Ethanol Procurement. Production capacity has expanded far more rapidly than current blending mandates can absorb, creating an imbalance that threatens the financial and operational stability of the distillery sector.
For the Ethanol Supply Year (Ethanol Supply Year 2025–26), the gap between available capacity and actual procurement has brought the principle of “existing capacity first” to the forefront of industry discussions. This principle has now become a central advocacy point for the All India Distillers’ Association (AIDA) and other industry bodies.
Understanding the ESY 2025–26 Allocation Challenge
The current supply cycle has exposed a significant procurement mismatch. While Oil Marketing Companies invited tenders for approximately 1,050 crore litres under the E20 mandate, ethanol manufacturers collectively offered nearly 1,776 crore litres. This oversubscription reflects the scale of ethanol production in India, which expanded rapidly in response to earlier policy signals and government incentives.
With total national distillation capacity touching nearly 1,990 crore litres by late 2025, the procurement ceiling imposed by the E20 mandate has left a large volume of ethanol without assured buyers. More than 350 established distilleries have received allocations well below their operational capacity, creating uncertainty across the sector.
The Risk of Idle Capacity in a Strategic Sector
Idle capacity in a sector as capital-intensive as ethanol production carries serious implications. A substantial portion of today’s infrastructure was built under direct government encouragement, including Long-Term Offtake Agreements and the Interest Subvention Scheme. These investments, amounting to nearly ₹42,000 crore in sanctioned loans, were made with the expectation of stable and predictable procurement.
When established plants operate at barely 50–60 percent capacity, the risk of stranded assets rises sharply. Underutilisation not only weakens balance sheets but also increases the likelihood of financial stress spreading to the banking system. From an energy-security perspective, allowing proven capacity to remain idle undermines the resilience of the national fuel supply chain.
Balancing Capacity Expansion with Utilisation
The rapid scale-up of ethanol production in India has been a policy success, but utilisation must now catch up with capacity. Continued approval of new distilleries in so-called deficit zones, while surplus capacity exists in neighbouring states, has intensified concerns within the industry.
Industry associations argue that transporting ethanol from surplus regions is often more efficient and sustainable than building redundant new plants. Without a roadmap beyond E20, the current “blend wall” limits procurement volumes, forcing many grain-based and sugar-based units to operate below economically viable levels. Balancing future expansion with effective utilisation has therefore become essential to maintaining sectoral stability.
A Holistic Procurement Model: What It Means
To address these imbalances, industry bodies have proposed a shift toward a national, integrated Ethanol Procurement Policy framework. The holistic model calls for prioritising existing, proven infrastructure before allocating volumes to new entrants. Rather than treating states as isolated zones, surplus availability across regions would be integrated into a national supply plan.
Such an approach would correct the fragmentation seen in ESY 2025–26, where allocation decisions left surplus units stranded despite national oversupply. By honouring prior commitments made during the expansion phase, a holistic model also reinforces investor confidence and prevents wasteful duplication of capacity.
The Importance of Predictability for Distillery Operations
Predictability has emerged as the most critical requirement for distilleries navigating the post-E20 environment. Ethanol production involves long planning cycles, advance feedstock procurement, and continuous operations that cannot be adjusted overnight.
Sudden reductions in allocation disrupt cash flows, complicate loan servicing, and create inventory risks. For grain-based units, uncertainty around procurement makes feedstock management particularly challenging, as maize and rice contracts are finalised months in advance. Operationally, frequent shutdowns caused by demand volatility increase energy consumption and make compliance with environmental norms more difficult.
Clear, multi-year signals on blending targets and procurement volumes are therefore essential to enable distilleries to plan investments, maintain efficiency, and transition toward advanced biofuels.
AIDA’s Advocacy for Balanced and Equitable Allocation
As the apex national body representing over 390 distilleries and nearly 80 percent of India’s distillation capacity, All India Distillers’ Association plays a central role in addressing the current procurement imbalance.
AIDA has consistently advocated for fair allocation mechanisms that prioritise existing capacity, protect investments made under government-backed schemes, and integrate surplus availability across state boundaries. The association has also called for an immediate roadmap beyond E20, including phased targets such as E25 and E27, to absorb idle capacity and restore utilisation levels.
In parallel, AIDA continues to engage with policymakers on improving procurement predictability, harmonising interstate movement rules, and introducing operational flexibility in feedstock usage. These measures are aimed at ensuring that India’s ethanol ecosystem remains financially stable, environmentally sustainable, and capable of supporting the next phase of biofuel blending.
Conclusion
The challenges witnessed during the Ethanol Supply Year 2025–26 underline a critical lesson for India’s biofuel journey: capacity expansion must be matched by fair and predictable procurement. As Ethanol Procurement becomes a defining issue in the post-E20 phase, prioritising existing infrastructure is essential to protect investments, maintain energy security, and sustain confidence in the sector.
Through data-driven advocacy and constructive engagement, the All India Distillers’ Association continues to work toward a balanced procurement framework that aligns national blending ambitions with on-ground realities. Ensuring equitable allocation today will determine the strength and credibility of India’s biofuel programme in the years ahead.