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As India Achieves E20 Target, Ethanol Industry Eyes Next Growth Phase: Infomerics Ratings

Infomerics Ratings highlights India’s ethanol industry potential as focus shifts to higher blending and capacity utilisation.

October 16, 2026. By Abha Rustagi

India’s ethanol industry faces a growing gap between production capacity and demand after the country achieved its 20 percent ethanol blending target, with low plant utilisation and debt repayment emerging as key concerns, Infomerics Ratings said in a report.

India’s annual distillation capacity has reached about 2,000 crore litres across 478 units in 22 states, compared with estimated demand of 1,113-1,134 crore litres from oil marketing companies (OMCs) in ethanol supply year 2026-27, the ratings agency said.

The gap could widen as additional plants come online, putting pressure on returns on more than 40,000 crore rupees invested in distillery capacity, much of it financed through debt.

“India’s ethanol blending programme has successfully addressed the supply constraints that initially limited the country’s ability to increase ethanol blending in petrol. However, with the E20 target achieved and installed distillation capacity now significantly exceeding demand under the current mandate, the industry faces a new challenge of ensuring adequate utilisation of the capacity already created. Until there is clarity on blending beyond E20 and on flex-fuel adoption, fresh debt-funded capacity, particularly in states that already produce three times what they blend, deserves careful scrutiny,” Rohit Inamdar, chief risk officer at Infomerics Ratings, said.

India’s ethanol blending rate rose from 1.53 percent in 2013-14 to an average of 20 percent by December 2025, while supplies to OMCs increased from about 38 crore litres to around 1,050 crore litres in 2025-26, the report said.

The programme has helped reduce crude oil import dependence, support farmer incomes and lower carbon emissions. But the industry’s next phase will depend on whether demand can absorb the capacity built during the rapid expansion.

Eligible producer offers for 2025-26 totalled about 1,759 crore litres, against an OMC tender of 1,050 crore litres, indicating a substantial supply surplus, Infomerics said.

If the E20 mandate remains unchanged and flex-fuel vehicles see limited adoption, industry capacity utilisation could decline to around 61 percent by 2029-30, the report estimates.

Based on projected capacity of 2,475 crore litres, about 969 crore litres could remain idle.

Higher blending targets could improve utilisation. An E25 mandate could raise utilisation to around 76 percent without flex-fuel vehicles, increasing to 94 percent if such vehicles account for 10 percent of the relevant vehicle base, the report said.

Regional imbalances could also intensify competition. Across 23 states analysed, installed capacity is about 1.86 times the capacity needed to meet their respective E20 blending requirements. Although national procurement allows ethanol to move between states, producers in surplus regions may face higher transport costs and greater competition for allocations.

Lower utilisation could weaken profitability because interest, depreciation and several operating expenses remain largely fixed even when output falls. Administered ethanol prices also limit producers’ ability to pass on higher feedstock costs, particularly when maize or sugarcane prices rise.

“A distillery running at 55-60 percent carries the same interest and depreciation as one running at 90 percent, and administered pricing leaves little room to recover the difference. We expect integrated producers with multi-feedstock plants and moderate leverage to broadly hold their debt-protection metrics, while recently commissioned standalone units are likely to deleverage more slowly than their original projections assumed,” Manav Mahajan, ratings group head at Infomerics Ratings, said.

Integrated producers with flexible feedstock options, revenue from by-products and moderate debt levels are better placed to manage the pressure, while recently commissioned standalone plants, particularly those dependent on a single feedstock in surplus-producing states, may take longer to reduce debt, the report said.

Infomerics Ratings maintained a stable outlook on the Indian ethanol industry, citing policy continuity, predictable OMC procurement, energy-security priorities and a diversified feedstock base.

However, credit performance is likely to diverge, with plant utilisation, cash generation, working-capital management and balance-sheet strength becoming increasingly important.

Progress towards blending beyond E20, flex-fuel vehicle adoption, feedstock prices and the outcome of 2026-27 ethanol supply tenders will be key indicators for the sector, the agency said.

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Ethanol Blending Programme

Ethanol Blended Petrol