The ambitious program of the Indian government to reduce dependence on imported oil has encountered a serious obstacle. This year, monsoon rains were the lowest in the last decade. Due to El Niño, precipitation decreased by approximately 13%, negatively affecting the harvests of corn and sugarcane. The shortage of these crops caused a sharp rise in their prices.
Prices for corn and sugar increased by almost 40%, while the price of rice rose by 20%. Retail food inflation reached 7.74% in September, compared to 5.97% in the previous month. In light of this situation, New Delhi restricted the use of sugar and corn to ensure food security. Consequently, the share of ethanol in gasoline may decrease from the current 20% to 15%.
The E-20 program, a vital part of Prime Minister Narendra Modi's energy strategy, mandates mixing 20% ethanol into gasoline. According to government data, this program has saved about 2 trillion rupees, equivalent to US$21.1 billion, on oil imports since 2014. Previously, the annual savings at a 20% blending level were estimated at 430 billion rupees. India achieved this goal about five years ahead of schedule, but now the achieved target is threatened due to raw material shortages.
Industry experts believe that the ethanol blending level may remain between 15–17% this year. This reduction will mainly depend on corn prices. G.K. Sud, Chairman of K.N. Agri Resources and an expert on food policy, noted that since India is the most populous country in the world, priority should be given to food rather than fuel during drought years.
Several companies have increased their production capacity to approximately 20 billion liters per year by taking significant loans to boost ethanol production. However, the reduction in blending levels creates a problem of excess capacity. Four manufacturers, who wished to remain anonymous, reported expecting a blending level in the range of 15–17%.
Last month, the government instructed refineries not to purchase sugar-based ethanol in the new supply season. Furthermore, the procurement price for corn-based ethanol was reduced from 71.86 rupees per liter to 68.86 rupees per liter, putting further pressure on distilleries' margins. Producers are now resorting to damaged grains, raising concerns about the availability of animal feed. Corn production this year is projected to fall by 15% compared to a record 55 million metric tons. Farmers affected by drought cannot increase corn plantings in winter due to water scarcity.
Food inflation is an extremely sensitive political issue. Elections for legislative assemblies will take place in several states, including Uttar Pradesh, at the beginning of 2027, and Uttar Pradesh is considered a barometer of national politics. The Bharatiya Janata Party (BJP) failed in the 2024 elections there. The E-20 program was already controversial. motorists and some automakers worried about fuel efficiency and engine wear. Following public reaction, the government stated that there were no plans to increase the blend above 20%. Rice stocks are available as an alternative raw material, but the government has to sell it to ethanol producers at nearly half the price, which increases costs.
This situation demonstrates how climate change and weather unpredictability can affect energy policy. In good monsoon years, India achieved its goal by increasing ethanol blending fourfold, but a poor monsoon has set the entire program back. Increased dependence on imported crude oil will also increase the risk of energy price fluctuations amid geopolitical uncertainty. Experts believe that in the long term, focus must be placed on developing alternative raw materials, improving water resource management, and diversifying agricultural crops.
Currently, the government's stance is clear: food will take precedence over fuel. This will bring relief to ordinary citizens but will harm the goals of the ethanol industry and oil import savings. In the coming months, it is important to monitor the availability of corn and sugar, as well as government policy. This incident underscores the need for climate adaptation on the path to self-sufficient energy policy.
