India's ethanol target faces drought-driven setback

India's ambitious ethanol production target is threatened by a severe drought that has reduced monsoon rainfall to its lowest level in over a decade. The crop shortage has driven up prices for corn and sugarcane, the primary feedstocks for ethanol, causing the government to prioritize food security over ethanol production. As a result, the proportion of ethanol in Indian petrol is set to drop below the official 20% target for the current supply year, reversing progress made earlier.

The drop in ethanol use would weaken Prime Minister Narendra Modi's energy security program and increase India's reliance on imported crude oil. The E20 initiative, which has saved nearly 2 trillion rupees in oil import costs since 2014, could see its blending rate fall to around 15% in the current supply year. Lower blending rates would squeeze ethanol producers, leaving them with significant overcapacity.

Food inflation is already high, and the political pressure to maintain low prices could further undermine ethanol production. Despite these challenges, the government has signaled a shift in priorities and directed oil companies not to procure sugar-based ethanol for the new supply season.