Sugar Lobby Pushes for E22 Transition, Flex-fuel Policy as Ethanol Overcapacity Bites

April 06, 2026

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by Hormazd Sorabjee and Mugdha Mishra (AutoCar Professional) Indian Sugar & Bio-Energy Manufacturers Association (ISMA) says a calibrated move to E22 is immediately viable, and wants lower GST on E100 to make flex-fuel vehicles commercially attractive.

India's ethanol blending programme is at a crossroads. With production capacity running at roughly double the current consumption level, and global crude prices surging past $110 a barrel amid the war in the Middle East, the Indian Sugar and Bio-Energy Manufacturers Association (ISMA) is making a pointed case: the country must move beyond E20, and it must create the right policy environment for flex-fuel vehicles to scale.

In an interview with Hormazd Sorabjee, ISMA Director General Deepak Balani laid out the association's position and the hard numbers behind it.

An Overcapacity Crisis in the Making

India currently has the capacity to produce nearly 2,000 crore litres of ethanol annually, with an additional 400 crore litres of capacity set to come online next year. Against that, consumption at the E20 blending level stands at approximately 1,100 crore litres, meaning only around 50 percent of installed capacity is being utilised. "Most of the distilleries in the country will run under capacity, which is economically not viable for the industry," Balani said, noting that this situation has been compounded by government incentives that encouraged capacity build-out without corresponding policy support on the consumption side.

Export is not a realistic short-term fix, either. India's sugarcane-based ethanol production costs are structurally high because feedstock prices are set by the government.

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Pushing for E22 Blends

Rather than a leap to E27, ISMA is advocating a measured step to E22 as an immediate interim measure. Balani argues the transition is technically straightforward, vehicles that are E20-compliant, mandatory for all new vehicles sold after 2023, can handle higher blends without recalibration.

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On the fuel-efficiency debate, which has been a flashpoint on social media and in consumer forums, Balani pushed back on what he called "misinformation," though he acknowledged some drop. "ARAI, along with OEMs, said the mileage drop is around 5–6 percent, and that is also on the component of 20 percent ethanol. So overall, the impact comes down to around 2–3 percent," he argued. He attributed part of the efficiency loss reported by consumers to vehicle maintenance rather than ethanol content per se.

Autocar India's own tests, however, recorded drops of up to 12 percent on older or less optimised vehicles on the E10-to-E20 transition, a gap that Balani did not fully contest, acknowledging that older vehicles and engine calibration are real variables.

The bigger play: flex-fuel vehicles and a path to 40–50 percent blending ISMA's longer-term vision is not just about incremental blending hikes, it is about establishing flex-fuel vehicles as a mainstream alternative powertrain, much as Brazil has done, where 90 percent of the fleet is now flex-fuel.

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For that to happen, Balani identified two non-negotiables: competitive pricing for E100 fuel, and an end to the cost premium on flex-fuel vehicles over equivalent ICE models.

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There are early policy signals. The draft CAFE-3 norms, yet to be formally notified, include super-credit provisions of 2.5 for biofuel vehicles, which will be a meaningful incentive for OEMs.

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The OEM Relationship: cautious, work in progress

The auto industry's concerns are well-documented. E20 was effectively imposed over OEM objections, and another blending hike means further recalibration costs at a time when the industry is already navigating EV transition expenditure. Balani acknowledged the friction. "We are in discussions with almost all the OEMs. We are also in discussion with SIAM, ACMA, and we are trying to see how we can come on the same page," he said, adding that a collaborative pathway was the goal rather than another imposition.

For the older vehicle parc, the segment most vulnerable to higher blends, Balani pointed to a flex-fit retrofit kit tested with IIT Delhi as a potential solution, though it must be noted that this project is still at the pilot stage. 2026 will be an inflection year.

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"The government is looking at how to really increase the consumption of ethanol, and how to reduce the dependence (on crude imports).

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Most manufacturers have already future-proofed engines and fuel systems of current cars to be materially compliant with E30, anticipating the long-term roadmap.

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What that new floor will be remains unclear, with the government pressing for ever-higher blends while automakers warn of real-world hardship for motorists in the form of lower mileage, potential reliability issues, and higher ownership costs. In this tug-of-war between policy ambition and technical pragmatism, the average motorist’s concerns remain worryingly low on the priority list — even though they are the ones ultimately paying both at the pump and in the workshop. READ MORE

Sugar lobby pushes for E22 transition as ethanol overcapacity bites (AutoCar India)
PERILS OF PUSHING ETHANOL (Orissa Post)
Sugar Industry Seeks Export Cap To Boost Ethanol Output Amid Global Price Mismatch ((Knowledge & News Network India)

Excerpt from Orissa Post: Achieving this would require a shift from sugar and sugarcane—leading to a growing dependence on maize, broken rice and rice procured from Food Corporation of India.

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Equally alarming is the water footprint.

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In a recent tender for the Ethanol Supply Year (ESY) 2025-26 (starting November), Indian oil marketing companies (OMCs) asked for 10.5 billion litres of ethanol, but the domestic industry offered 17.76 billion litres, far exceeding the government’s requirement.

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In states like Maharashtra and Uttar Pradesh, hundreds of proposals for new ethanol distilleries have sprung up, bolstered by tax breaks and subsidies.

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India needs independent, context-driven energy strategies that balance emissions with equity and development. It must not succumb to global climate discourse – driven by Western carbon pressure.

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Priorities should include boosting energy efficiency to curb demand, scaling solar and wind as truly indigenous alternatives, and optimising transport via rail, buses and electric three-wheelers. Biofuel efforts must focus on waste-based and advanced technologies that avoid food and water stress. Additionally, green hydrogen from renewables offers a viable pathway for industry and heavy transport without burdening farmland. India’s strategic goal should be securing energy and agriculture simultaneously, not sacrificing one for the other. By all means, use cleaner fuels – but not at the cost of starving our farms and drying our wells. READ MORE