India may cut ethanol blending as drought lifts food prices

India is likely to use less ethanol in petrol after the lowest monsoon rainfall in more than a decade raised food prices and cut feedstock supplies, industry figures say, a shift that could leave one of the world's largest oil importers more dependent on crude.

The share of ethanol blended into petrol is expected to fall to about 15 percent in the supply year that began this month, from 20 percent in the previous year, G.K. Sood, chairman of agribusiness company KN Agri Resources, told The Kathmandu Post. Four ethanol producers, who spoke anonymously, said they expected blending of 15 to 17 percent, depending on corn prices.

India's government reached a 20 percent blending target, known as E20, about five years ahead of schedule. The programme has saved nearly 2 trillion rupees ($21.1 billion) in oil import costs since Prime Minister Narendra Modi took office in 2014, according to government data cited by the newspaper. Annual savings at the 20 percent rate were estimated at 430 billion rupees.

The monsoon deficit this year was nearly 13 percent below normal. Corn and sugar prices rose about 40 percent to record highs, and rice prices climbed 20 percent, the report said. Retail food inflation accelerated to 7.74 percent in September from 5.97 percent a month earlier.

"India is the world's most populous country, so food has to take priority over fuel, more so in a drought year," Sood said.

The government last month told oil companies not to buy ethanol made from sugar-based feedstocks for the new supply season. It also cut the purchase price of corn-based ethanol to 68.86 rupees per litre from 71.86 rupees, The Kathmandu Post reported. A government spokesperson did not respond to a Reuters request for comment, the newspaper said.

Ethanol producers borrowed heavily to expand capacity to about 20 billion litres a year, the report said, and lower blending would leave them with overcapacity. Corn production could fall by as much as 15 percent from this year's record of 55 million metric tons, according to industry estimates.

Food inflation is politically sensitive before assembly elections in several states in early 2027, including Uttar Pradesh, India's most populous state. Modi's Bharatiya Janata Party lost ground there in the 2024 general election, with opposition parties winning more seats.

Some motorists and automakers have raised concerns about fuel efficiency and engine wear from higher ethanol blends. The government has said it has no plans to raise the ratio above 20 percent.

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