E20 Achieved, What Next? ISMA’s Deepak Ballani on Ethanol Policy Gaps

This is a transcript of an interview with Deepak Ballani, DG, ISMA, regarding a policy proposal of strategic importance concerning the adoption of ethanol-based cooking solutions as a complementary clean fuel within India’s cooking energy framework.

Prasanna Singh:

Good to meet you formally. I’ve, of course, been hearing about you. I think my colleague Subhash Yadav might have been in touch earlier, and he had been telling me you must have a chat and all that. So I’m glad we’re finally up and running here.

So maybe you could just start by giving a quick perspective on the current situation in West Asia, for example, and how that makes us relook at plans, and how that maybe places the biofuel sector in a better position now to make its case. So just start with that, and I’ll hopefully keep coming back to my questions.

Deepak Ballani:

Yeah, thank you. Thanks, so nice to connect.

As you know, we have been talking about it in the media, and also the government is talking about how this West Asia crisis has again stated that our dependence on the import of fuel is something which is very fragile. I think we all took it for granted, but only after we faced this situation, we realised that a lot of things depend on the entire shipping route and our imported crude.

Till now, ethanol 20% blending—we have been saying, and the government has been saying—that it is very beneficial for the country, and imports have dropped by at least 4.5 crore barrels of crude because of 20% blending.

At the same time, some stakeholders were not very happy with it. Last year, we saw how maybe it was instigated by a lobby or whatever—I don’t know—but a lot of negative narratives came out. Somebody or a group of people tried to paint a very negative picture, and a lot of people questioned it.

But today we realise that not only India, but those countries that have not yet started on the biofuel journey have also begun seriously thinking about ethanol mandates. Because everybody wants to ensure that their dependence on imported crude and imported energy is minimised.

With that context, I believe it is very important for us to look beyond E-20. We have already achieved E-20—very good, very great policy. Everything is so good. Hats off to the government. But what is beyond E-20? Why do we have to stop at E-20? Why couldn’t we have planned something three years back?

We knew E-20 was going to be achieved by 2025, given the investment and the overcapacity that was already expected. So I think there should have been a policy discussion. There could have been a better roadmap. Governments are supposed to work with a vision. They do not behave like normal citizens, where we only see what is happening today and do not have that kind of long-term vision. Governments are supposed to have the machinery which looks beyond and plans for the future.

Unfortunately, that was not done. But better late than never. I believe it is time that we look beyond E-20—not only petrol blending, but also other applications.

Today, with the kind of overcapacity we have, the government has now stopped giving new licences for ethanol capacity because we do not know what to do with our present capacity. So I believe we have to look beyond.

If we are talking about 2000 crore litres or 2400 crore litres, with present consumption only around 1100 crore litres, how can we utilise the surplus capacity? On top of that, we should plan for the next 10, 15, 20 years, where we also see how more ethanol capacities can come up—maybe from second-generation fuel, third-generation—and how we can really plan more applications for ethanol blending.

For example, ethanol cooking stoves, iso-butanol, diesel blending, or use in gensets—there are a host of applications where perhaps we can work on that. I believe the time has come to be more serious about it in terms of policy planning.

Prasanna Singh:

Mr Ballani, one of the interesting aspects of the whole ethanol revolution was that you had targets for 2030, and we have met them in 2026 itself, which is as rare as it gets in our country—let’s face that.

So I want to understand from you, how did that happen? How did capacity ramp up so fast, so rapidly, including so many aspects like capital, land—everything seems to have fallen into place? How did that happen? Is there a lesson there, or is it just some coincidence?

Deepak Ballani:

No, definitely it’s a lesson. See, capacities just don’t come up like that.

Earlier, we had planned for 2030, but the government advanced the target. Having said that, way back in 2018–19–20, the government started really pushing the industry to put up capacity. NITI Aayog came with a very clear policy roadmap. The interest subvention was extended to the industry.

For example, the sugar industry was asked to put up refineries and distilleries and make their operations more integrated. So, with capacity addition and additional investment, the same molasses and sugarcane juice could be diverted to make ethanol.

On top of that, the government gave strong commitment. For example, they promised 100% allocation. It is a very ideal scenario for an industry where the product is guaranteed. When you say 100% allocation, it means 100% of production is assured offtake.

They also promised that depending on feedstock prices, ethanol prices would be administered. Whenever feedstock prices are revised, ethanol prices would also be revised.

These two things, along with strong follow-up from the government and coordination with the industry, really encouraged capacity creation. The government actively pushed the industry to put up more capacity.

Also, because the required quantity could not be met by sugar alone, they pushed a lot of grain distilleries to set up capacity. They signed long-term offtake agreements with grain distillery suppliers, assuring them priority in allocation. These were called dedicated ethanol plants.

So I believe a combination of state incentives, central support, industry participation, assured offtake, and price mechanisms led to rapid capacity expansion. That is why we were able to achieve E-20.

But unfortunately, what happened was that because there was 100% allocation initially, everybody started putting up capacity. Even the government, I believe, did not realise that capacities were going far beyond consumption.

Last year, offers were made by producers for almost 1900 crore litres, but the allocation was much lower. As a result, almost 50% of capacity remained idle. This is a very precarious situation.

On top of that, the commitment to revise prices based on feedstock increases has not been honoured for the last three years. Specifically in sugarcane, where 75% of production cost is the cost of sugarcane, this is a major issue.

The FRP (Fair and Remunerative Price), which mills have to pay farmers, is decided by the government and increases every year. Even if conversion costs remain unchanged, the cost of sugarcane keeps rising.

Additionally, many states announce higher prices than the centre, known as State Advisory Prices. Despite rising feedstock costs, ethanol prices have not been increased.

This has created a very difficult situation for the industry. One issue is allocation, and the other is pricing. So I think corrective measures are needed.

Prasanna Singh:

Okay, so you mentioned two things. One, of course, is that as somebody who tracks this from outside, I have noticed there was always internal resistance to allowing sugar molasses, for example, to be used for ethanol production, which was considered a big decision when it happened.

And now again, I’m also seeing that there is hope being expressed that in future more ethanol production will happen from maize. Can you explain the logic behind these two moves? Why was it so difficult to get molasses included earlier? And now why is there this shift—moving away from broken rice and perhaps even sugar, and focusing on maize for ethanol? Why would that be?

Deepak Ballani:

No, no, I don’t think that is the case.

Why molasses? Initially, only C-heavy molasses, which is the final by-product, was used for ethanol. But the quantity of ethanol produced from C-heavy molasses is very limited.

Now, for the last 10 years, we have been producing more sugar than we consume. Earlier, the concern was that if you divert sugar, how will you meet domestic demand? But over the last decade, India has been a major producer of sugar.

So the government decided a priority framework: first, domestic consumption of sugar would be met. Whatever is surplus would be diverted to ethanol. And only if something remains after diversion to ethanol would it be exported. This priority was decided very correctly.

Then they allowed B-heavy molasses and sugarcane juice to be diverted to ethanol. However, how much diversion would take place is decided on a year-to-year basis, depending on production estimates. The government has planting data and various projections, so based on expected production and consumption, it decides how much molasses, B-heavy, and juice can be diverted.

Now, coming to maize—how maize came into the picture. Back in December 2023, although there were signals that sugar production would be good, the government received some different feedback. So in December, after allowing diversion from B-heavy molasses and sugarcane juice, they suddenly reversed the decision and restricted their use to a very limited quantity. This reduced ethanol diversion.

As a result, since blending targets still had to be met, the government decided to incentivise other sources. That is where maize ethanol was incentivised, with an additional ₹6 per litre.

After that, a lot of maize started entering the ecosystem, and the government also actively promoted it. However, the expectation of lower sugar production turned out to be incorrect—it was unfounded, as we had indicated. Eventually, we had very strong sugar production.

In fact, we had a surplus. Normally, we close sugar stocks at around 50 lakh tonnes, but we closed at nearly 80 lakh tonnes. This surplus also put pressure on the industry, as domestic sugar prices became suppressed.

However, there were unintended consequences of promoting maize too aggressively. The expectation was that maize would replace paddy, which is a water-intensive crop. But what actually happened was that maize replaced crops like soybean and pulses.

As a result, we ended up becoming large importers of pulses and soybean. So this was an unintended consequence.

Although the MSP was revised to ₹24, in reality, for the past year, market prices have been around ₹16–17. So even though MSP is ₹24, farmers are effectively getting only ₹16–17.

I am told that many farmers now want to return to their traditional crops—and rightly so. We should not be importing pulses and soybean. Instead, we should think about replacing paddy, as we already have excess rice. But replacing paddy is not easy.

I believe the government has understood this and is now trying to balance all crops.

Prasanna Singh:

Mr Ballani, one of the stories—of course, ethanol, despite its current challenges, is a success story, no doubt.

The other story that was expected to be very big was CBG, compressed biogas. But if you look at the numbers, performance has been relatively weak so far. Now there is renewed focus again, partly due to West Asia and other factors.

One feedback we’ve consistently heard from companies—and even from field visits—is that feedstock availability has not been as easy as expected.

Do you foresee competition between ethanol producers and CBG in the future? And what is the way out?

Deepak Ballani:

I don’t think so. I don’t see CBG and ethanol competing.

We are a very large country. Think about how many millions of cars or two-wheelers are sold every year. Our requirement is massive.

What we believe is that the country requires multiple clean technology pathways. India will need EVs, ethanol vehicles, CBG, and possibly green hydrogen in the future. A single pathway will not work.

So I believe CBG is very important, and we must take it seriously.

As you rightly mentioned, there have been several challenges. The government had targets for thousands of CBG plants by 2025, but progress has been limited, largely due to these challenges.

From the sugar industry perspective, we use press mud and spent wash for CBG production. However, there are major challenges, especially in the offtake of by-products like FOM (Fermented Organic Manure) and LFOM (Liquid Fermented Organic Manure).

There is no proper offtake mechanism, and there are restrictions on inter-state sale—whether in bulk or packaged form.

We have also requested that to make CBG viable, these products should be included under the MDA scheme of the fertiliser ministry.

Currently, the return on investment for CBG projects—especially press mud-based ones—is around 7 to 8 years. This is too long and does not attract industry investment.

If ROI can be brought down to 3–5 years, it will become much more attractive.

So a lot of policy measures need to be unlocked. But this is a very important sector, and we must work on it seriously.

I have been told that the government is working on additional support. Earlier, CBG was under the SATAT scheme. Now there are discussions about allocating around ₹12,000 crore under a new support mechanism, possibly a Sampoorna scheme.

Let’s see how that works. But the industry is ready—we are ready to invest and set up CBG plants.

Prasanna Singh:

I wanted to ask you—when we talk about ethanol production in India, the discussion around exports has not really come up in a big way. How do we compare in terms of export competitiveness right now?

Deepak Ballani:

As I said, our ethanol prices are governed by our feedstock prices. We are not like other countries where there is no regulation on feedstock prices. Our entire sector is heavily regulated.

As I mentioned, around 75% of the cost of production of ethanol is the feedstock cost. And we are among the countries that pay the highest price to farmers for sugarcane.

So, if you compare us with, for example, US grain ethanol, we are slightly more expensive. They use GM corn, where yields are higher, and the system is not regulated. So, we do not have that kind of international parity when it comes to ethanol exports.

Having said that, ethanol for petrol blending was moved from the free category to the restricted category back in 2018, because at that time the government wanted ethanol to be used for domestic purposes and not for export.

Now, after the West Asia crisis, I believe a lot of countries have started looking at ethanol mandates. That means global demand and consumption of ethanol is going to increase. So, we expect that international ethanol prices will see an upward movement due to demand and supply dynamics.

We have also requested that since we now have excess capacity, exports should be allowed in a controlled manner. For example, exports could be permitted only after clarity on domestic requirements from OMCs.

So, first priority should be domestic consumption. But if we have already fulfilled domestic demand, then the surplus can be exported.

Every year, DGFT could come out with a notification allowing limited exports. At least some quantity could be exported in this way.

Prasanna Singh:

One of the questions I had was on the technology that is dominating in India. We used to hear about second-generation technology from Brazil, then third generation came in, and maybe even fourth generation is being used now.

Brazil has been a big influence, I’m assuming. So where are we in terms of technology? What is the dominant ecosystem in India, and do we need to catch up significantly?

Deepak Ballani:

In first-generation (1G) ethanol, we are very strong. We are among the most productive and efficient.

In second-generation (2G) ethanol, which uses agro-waste—such as sugarcane bagasse, parali, etc.—there is currently only one major plant, the IOCL Panipat plant, which is partially operational due to technological challenges.

I am told that another plant is being set up in Assam using bamboo, but that is still under development. We will have to see how efficient it is.

Having said that, second-generation ethanol has huge potential. The technology is reasonably mature, even compared to Brazil. But we need more plants in India.

The main challenge is aggregation of agro-waste. For example, IOCL is facing issues with collecting parali, which is seasonal. Plants need to run throughout the year, so consistent feedstock supply is critical.

So, while technology is one aspect, policy is equally important.

For 2G ethanol, the economics are not yet viable. The cost of production is significantly higher than 1G ethanol. If 1G ethanol costs around ₹70 per litre, 2G ethanol costs around ₹120 per litre.

Also, there is no clear pricing mechanism for 2G ethanol. If OMCs want to procure it, they need to define pricing structures.

Unless policy and pricing clarity are provided, no one will invest, because the investment is huge.

So it is a classic chicken-and-egg situation—the industry wants policy clarity first, and once that is in place, it will invest. Both need to go hand in hand. The government needs to work on the policy front.

Prasanna Singh:

So, Mr. Ballani, what we’ve seen in India over the last three to five years is that monsoons have generally been stable. We’ve had minor shortfalls or even excess rainfall in some years.

But what if there is a bad monsoon year, like we’ve seen in the past? What would be the impact on the industry? Since this is also a water-intensive sector, are these risks being adequately considered?

Deepak Ballani:

Yes, definitely. This is always a concern. Some years we will have good rainfall, and some years we will not.

States like Maharashtra and Karnataka, which are major sugarcane producers, are largely rain-fed. In contrast, Uttar Pradesh relies more on irrigation, so sugarcane production there is less dependent on the monsoon.

Having said that, the industry is working extensively on developing improved sugarcane varieties. These new varieties have better drought resistance, pest resistance, higher yields, and better recovery rates.

ISMA itself is working on around 28 new sugarcane varieties. Out of these, two have shown very promising results and could become game-changers—similar to earlier varieties that transformed sugarcane farming in Uttar Pradesh.

The industry is continuously working on improving crop resilience.

Additionally, micro-irrigation systems are being increasingly adopted, especially in Maharashtra and Karnataka. These reduce dependence on rainfall. Governments are also encouraging this through subsidies and support schemes.

Over the past several years, even with fluctuations in monsoon, we have been producing more sugar than domestic consumption requirements, and we have been able to divert sufficient quantities to ethanol.

So, while a poor monsoon may have some marginal impact, it is unlikely to fundamentally change the structure of the industry. It would not create a situation where we are unable to divert sugarcane for ethanol production.

Prasanna Singh:

So at the beginning, you spoke about looking at alternative use cases as well. So if I were to ask you—since you are constantly exposed to the ecosystem, speaking to many people and tracking developments—if you had to predict two more alternative use cases for ethanol, what would be the most likely ones that could drive volume uptake?

Deepak Ballani:

See, I believe one is calibrated petrol blending—gradual increase in blending levels.

Second is flex fuel. For example, Brazil has a system of flex fuel. These are basically ICE engines with slight modifications, which can take any ethanol blend from E0 onwards.

Now, if all ICE engines could be converted, or if in the future the government decides that only flex engines will be allowed, then that would be a game changer. There is hardly any difference between ICE and flex engines.

If we move towards E85 or E100 fuels, that could significantly increase ethanol usage. However, for that, there has to be differential pricing. Since higher ethanol blends have lower mileage efficiency, consumers need to be compensated.

For example, if petrol is priced at ₹96–97 per litre, E85 should ideally be priced around ₹80 per litre. That would encourage both vehicle adoption and fuel usage.

In Brazil, almost 90% of vehicles are flex-fuel. At fuel stations, consumers can choose between E27 and E100.

In India, we are still deciding whether to move to E85 or E100.

The second major use case is diesel blending. There are technological challenges, especially related to flashpoint. But historically, there have been successful trials. Around 2008–2010, KSRTC ran about 2000 buses on ethanol-diesel blends for nearly eight months, and the results were positive.

At that time, ethanol supply constraints limited further adoption. But today, with surplus capacity, serious efforts should be made. OMCs are already conducting R&D.

If ethanol or even isobutanol can be blended with diesel, it could be a major breakthrough, as a large portion of ethanol demand would shift to diesel.

The third use case is ethanol cooking stoves. This has been successful in countries like Kenya, where nearly 1 million ethanol-based cooking systems have been deployed.

Why can’t this work in India, especially for users under schemes like Ujjwala?

We have submitted a white paper to the government outlining what is required to build this ecosystem. I am told that the government is seriously considering it and working towards a policy framework to support it.

Prasanna Singh:

Okay, just a couple of quick ones now.

Tell me, in terms of the overall manufacturing ecosystem for ethanol, how indigenous is it? How much is imported in terms of equipment or expertise? Are we self-reliant, or do we still depend on external support?

Deepak Ballani:

No, it is 100% indigenous now.

Our machinery manufacturers, commissioning expertise—everything is domestic. Indian companies are setting up these manufacturing plants.

So we are completely independent in terms of ethanol production infrastructure.

Prasanna Singh:

And in terms of the overall size of the sector today—excluding farmers—how big is it? In terms of number of companies, total revenue, and employment, what would be the scale?

Deepak Ballani:

See, in the sugar industry alone, we have invested around ₹40,000–45,000 crore in capacity for about 900 crore litres, primarily from sugarcane.

Most sugar mills are integrated with distilleries.

The exact number of companies is difficult to estimate. Employment could be around 3 to 4 lakh people. I can share more precise numbers separately.

Prasanna Singh:

Anything else where there is a major perception gap or misunderstanding? What is the biggest misconception you come across?

Deepak Ballani:

One major misconception is related to engine performance. Last year, social media carried a lot of negative narratives, but there is no issue with engine malfunction due to ethanol.

There are reports by testing agencies like ARAI, which is an autonomous certification body, clearly stating that there is no problem in engines due to ethanol blending.

However, social media amplifies misinformation. Once something gains traction, people start believing it. Even my friends sometimes question it, and I have to explain that there is scientific evidence proving there is no issue.

Regarding mileage efficiency, there is a minor drop because ethanol has around 25% lower calorific value than petrol.

However, with 20% blending, the efficiency drop is minimal—around 2% to 5%.

Additionally, the government has mandated that OMCs supply E20 fuel with RON 95 from April. Higher octane improves engine performance, reduces knocking, and enhances efficiency, which compensates for the loss.

So overall, there is no major concern with ethanol usage. However, for higher blends like E85 or E100, consumers must be compensated through pricing.

Prasanna Singh:

Final question, sir—what is the importance of ethanol for the sugar industry in terms of financials? If ethanol did not exist, what impact would that have?

Deepak Ballani:

Before ethanol, the industry faced major challenges. You would have heard of frequent farmer agitations 15–20 years ago due to delayed payments.

This is because the industry is highly regulated. The government decides both the price paid to farmers and the price of sugar.

India pays among the highest prices to sugarcane farmers globally, while sugar prices remain among the lowest. This creates a gap where production costs exceed revenues.

Ethanol has provided critical support. It has improved cash flow and ensured timely payments to farmers.

Over the last 8–10 years, farmer arrears have significantly reduced due to ethanol revenues.

If ethanol is removed from the sugar economy, the industry would again become financially unviable. Payments to farmers would be delayed, leading to rural distress.

Around 5.5 crore farmers and their families depend on sugarcane across multiple states like UP, Maharashtra, Karnataka, Tamil Nadu, Gujarat, and MP.

So ethanol has brought substantial relief to the industry. Without it, the system would face serious challenges.