Government Announces Financial Sops to Boost Ethanol Production

The new program is expected to bring in investments worth ₹400 billion

January 15, 2021


The Department of Food & Public Distribution (DoFPD) has announced that it would extend financial assistance to project proponents to enhance their ethanol distillation capacity.

The move is in line with the target of achieving 20% blending with crude oil by 2025 and enhancing ethanol production capacity in the country.

Financial assistance will be provided to set up distilleries to produce 1st Generation (1G) ethanol from feedstocks such as cereals (rice, wheat, barley, corn, and sorghum); sugarcane; and sugar beet. Assistance will also be provided for the conversion of molasses-based distilleries to dual feedstock.

Under the program, the government would bear interest subvention for five years, including a one-year moratorium against the loan availed by project proponents from banks at 6% per annum or 50% of interest, whichever is lower. The new program is expected to bring about ₹400 billion (~$5.47 billion) in investments.

The prospective investment in capacity addition and new distilleries will create various new employment opportunities in rural India. There is sufficient availability of feedstocks for ethanol production, and the government has set remunerative prices. Oil marketing companies are assured buyers of ethanol.

The program would facilitate the diversion of excess sugar to ethanol and encourage farmers to diversify their crops from sugarcane and rice to maize and corn, which need less water.

The government expects the program to help reduce India’s import dependency on crude oil.

The government has a target of 10% blending of fuel-grade ethanol with petrol by 2022 & 20% blending by 2030 to boost the agricultural economy, reduce dependence on imported fossil fuel, save foreign exchange on crude oil imports, and to reduce air pollution.

The government is also encouraging distilleries to produce ethanol from maize and rice available with the Food Corporation of India and increase fuel-grade ethanol production.

It is expected that in the current supply year (2020-21), about 3.25 billion liters of ethanol would be supplied to oil companies to achieve 8.5 % blending levels.

State governments and union territories have been requested to help entrepreneurs secure land to set up distilleries and give quick environment clearance.

Uttar Pradesh, Maharashtra, and Karnataka are the major sugarcane and ethanol producers. Shipping ethanol to far-flung states from these three states involves huge transportation costs.  However, new grain-based distilleries across the country would result in the distributed production of ethanol and save transportation costs while preventing further delays in meeting the blending targets.

About 50 million sugarcane farmers and 500,000 workers associated with sugar mills and other ancillary activities would be benefitted.

The government has also proposed to advance the target of achieving 20% blending of ethanol with petrol to 2025. In December 2020, the Ministry of Road Transport and Highways had sought comments from the public on adopting E20 (Ethanol 20) as an automotive fuel.

In an interview with Mercom, Dr. Pramod Chaudhari, Founder & Executive Chairman of Praj Industries, had commented, “Projects like 2G advanced bioethanol and compressed biogas (CBG) are a few alternatives to utilize straw more effectively. They will also help build a circular bioeconomy by producing transportation fuel and bio-fertilizer for farmers. The projects based on paddy straw as feedstock will produce 2G advanced bioethanol using Praj’s proprietary enfinityTM technology.”

Image credit: By Mariordo Mario Roberto Duran Ortiz – Own work, CC BY 3.0