New Delhi/Mumbai, October 15, 2026: India’s ethanol industry is entering a new phase as rapidly expanding production capacity outpaces demand following the achievement of the 20% ethanol blending target in petrol. According to a report by Infomerics Ratings titled India’s Ethanol Industry: From Building Capacity to Filling It, the country’s annual distillation capacity has reached approximately 2,000 crore litres across 478 units in 22 states, while demand from oil marketing companies (OMCs) is estimated at 1,113–1,134 crore litres for Ethanol Supply Year (ESY) 2026–27.
The report highlights a growing capacity-demand gap that could affect plant utilisation, profitability and credit quality across the sector. More than ₹40,000 crore has been invested in distillery capacity, much of it supported by debt, making adequate demand absorption critical to ensuring sustainable returns. Additional plants under development could further widen the supply surplus unless blending targets increase or new sources of demand emerge. 
Rohit Inamdar, Chief Risk Officer at Infomerics Ratings, said India’s ethanol blending programme had successfully addressed earlier supply constraints, but the industry now faces the challenge of utilising the capacity already created. He cautioned that fresh debt-funded investments, particularly in states where production capacity significantly exceeds local blending requirements, warrant careful scrutiny until there is greater clarity on blending beyond E20 and flex-fuel vehicle adoption.
India’s ethanol blending rate increased from 1.53% in ESY 2013–14 to an average of 20% by December 2025. Ethanol supplies to OMCs rose from approximately 38 crore litres to around 1,050 crore litres in ESY 2025–26. However, eligible producer offers reached nearly 1,759 crore litres against an OMC tender of 1,050 crore litres in the same supply year, indicating substantial excess supply.
Infomerics Ratings estimates that capacity utilisation could decline to around 61% by FY2029–30 if the E20 mandate remains unchanged and flex-fuel vehicles see limited adoption. Under a projected capacity of 2,475 crore litres, approximately 969 crore litres could remain idle. An E25 blending mandate could raise utilisation to around 76%, potentially increasing to 94% if flex-fuel vehicles account for 10% of the relevant vehicle base.
The report also identifies regional imbalances, rising feedstock costs and administered ethanol prices as challenges for producers. Manav Mahajan, Ratings Group Head at Infomerics Ratings, noted that lower plant utilisation could weaken profitability because interest and depreciation expenses remain largely fixed. Integrated producers with multiple feedstock options, additional by-product revenues and moderate leverage are expected to remain better positioned than recently commissioned standalone distilleries.
Infomerics Ratings maintains a Stable outlook on the Indian ethanol industry, supported by policy continuity, OMC procurement and energy-security priorities. However, future credit performance will depend on capacity utilisation, cash generation, working-capital management, feedstock prices and progress towards higher blending targets. The adoption of flex-fuel vehicles and the outcome of ESY 2026–27 tenders will remain important indicators of the sector’s growth trajectory.
