In a bold shift towards energy self-reliance and sustainable resource management, India has begun diverting record volumes of surplus rice into ethanol production, a strategic move that marks a new chapter in the country’s renewable fuel journey. Backed by a record harvest and weakened sugarcane supplies, this shift aims to maintain India's aggressive push towards achieving its 20% ethanol blending target.

As per recent disclosures by the Food Corporation of India (FCI), a staggering 5.2 million metric tonnes of rice—which represents almost 9% of global rice trade—has been allocated for ethanol production in the 2024-25 marketing year ending June. This is a dramatic jump from under 3,000 tonnes allocated in the previous year, marking a substantial strategic pivot in India’s biofuel policy.

A Bumper Harvest That Created a Challenge

The decision comes on the heels of a bumper rice harvest, fuelled by favourable monsoon conditions. India produced an estimated 146.1 million tonnes of rice, far exceeding the domestic demand pegged at 120.7 million tonnes. As a result, rice reserves swelled to 59.5 million tonnes by June 1, 2025, over four times the government’s official buffer requirement.

This glut presented a logistical and economic dilemma—what to do with the excess? Traditional export routes were already saturated, with India projected to export 22.5 million tonnes of rice in 2025, representing a 25% increase over last year. But given that India already controls 40% of the global rice trade, there was limited scope to expand exports without destabilising international prices or invoking trade backlash.

Sugarcane Drought Triggered the Rice Pivot

The other major catalyst for this decision is the drought-hit sugarcane supply. Sugarcane, the mainstay of India’s ethanol programme, suffered setbacks due to erratic rainfall last year. With sugar output under pressure, the government pivoted to rice as an alternative feedstock to keep the ethanol blending programme on track.

The result? India reached a historic 19.8% ethanol blending rate last month—just short of its 20% target. This figure was once seen as aspirational for a nation where ethanol had long been underutilised as a transportation fuel. But aggressive procurement, policy support, and feedstock diversification have significantly accelerated progress.

Ethanol Prices vs. Rice Sale Value: A Tight Margin

Despite the aggressive push, economics remain tight. Ethanol is being procured by oil marketing companies at Rs. 58.5 per litre (approx. US$ 0.68), while rice is being sold at Rs. 22,500 per tonne (US$ 262.69). Industry experts say the current pricing leads to narrow margins for ethanol producers, especially when logistics and processing costs are factored in.

However, with government incentives under review, many producers believe that larger rice allocations may be feasible in the next marketing year—provided that ethanol procurement prices or direct subsidies are enhanced.

Strategic Implications: Food vs. Fuel Debate

India’s rice-to-ethanol redirection is not without controversy. Critics have flagged the risk of using food crops for fuel, especially in a country with millions living below the poverty line. But the government has clarified that the rice being used is excess stock and does not compromise the Public Distribution System (PDS) or food security.

In fact, the policy offers a practical outlet for surplus grain, which otherwise incurs storage costs, rot risk, and procurement wastage. It also supports India’s clean energy ambitions, reduces oil imports, and aligns with its commitment to the Paris Agreement on climate change mitigation.

Ethanol’s Expanding Role in India’s Energy Mix

The use of ethanol derived from grains like rice reflects a more diversified and resilient energy strategy. Ethanol blending has environmental benefits such as reduced carbon emissions and lower particulate pollution, which is especially relevant in cities grappling with toxic air.

With Global Capability Centres (GCCs) and industrial clusters becoming more energy-conscious, the push for biofuels like ethanol complements the overall green transition India is undertaking in its transport, agriculture, and energy sectors.

Moreover, grain-based ethanol opens the door for investment in advanced processing units, job creation in rural areas, and strengthens India’s agricultural economy by providing an alternate revenue stream for farmers and processors.

Export Limitations Reinforce Domestic Use

Even though exports are expected to touch 22.5 million tonnes, India’s already dominant position in global rice trade means there is limited room for growth without violating WTO norms or facing retaliatory tariffs. Thus, ethanol emerges as a strategically sound option, both economically and diplomatically.

Analysts suggest that even if just 10% of surplus rice is converted to ethanol annually, it could add billions of litres to domestic fuel supply, thereby reducing dependency on imported crude and making India energy-secure.

Looking Ahead: Policy Evolution and Agricultural Strategy

To ensure long-term viability, the ethanol policy must evolve with improved price realisation for producers, expanded infrastructure, and clear guidelines on feedstock usage to avoid food security concerns.

Agricultural planning also needs to be synchronized with fuel demand projections. India may need to incentivise specific grain cultivation, promote second-generation ethanol plants, and maintain a delicate balance between food and energy priorities.

In the next few years, rice could well supplement or even rival sugarcane as the primary feedstock for ethanol—especially if production remains high and exports remain flat.

Conclusion: From Surplus Crisis to Strategic Asset

What once seemed like a crisis of excess is now being strategically transformed into a national asset. By channelling its record rice surplus into ethanol production, India is not only easing the burden on its food storage system but also taking major steps toward a greener and more self-sufficient energy future.

As India's ethanol blending programme gains pace, bolstered by bountiful harvests and agile policymaking, it paves the way for a more sustainable agriculture-energy convergence, unlocking new economic value from traditional food systems and reaffirming India’s commitment to energy independence and climate goals.

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