India’s ethanol industry is growing rapidly, and perhaps for a good reason. With the government pushing towards cleaner fuel alternatives and achieving sustainability goals, ethanol has evolved into more than a byproduct of the sugar industry's fermentation process. It’s now a legitimate asset in the country’s energy plan.
Ethanol is considered a renewable fuel or a biofuel and is usually blended with petrol and diesel. Government initiatives, such as the Ethanol Blended Petrol (EBP) programme, have transformed this sector into a hotspot for investment.
In a press release report, the Ministry of Petroleum and Natural Gas stated that it aims to increase ethanol blending in petrol from nearly 18 percent in Ethanol Supply Year (ESY) 2024-25 to above 20 percent in ESY 2025-26. With strong government support, improved infrastructure, and rising demand for sustainability, the ethanol industry is capturing investors’ attention.
In this post, we’ll discuss the top ethanol stocks in India and provide insights into the ethanol production process and its applications.
In the 2025-26 budget announcement, the government allocated around ₹250 crores for the biofuel sector. Along with funding, here are some national policies and incentives:
National Policy on Biofuels (NPB)
The National Policy on Biofuels was approved by the Union Cabinet in 2018. It sets a clear framework for expanding India’s ethanol production. NPB classifies biofuels into 1G (basic) and advanced categories like 2G and 3G (ethanol, bio-CNG, and fuels from municipal waste) with targeted incentives for each. The policy allows raw materials like sugarcane juice, corn, damaged food grains, and starch-rich crops such as cassava and potatoes to be used in ethanol production.
A key initiative under this policy is the Ethanol Blended Petrol (EBP) Programme, which blends ethanol with petrol to reduce crude oil imports and lower carbon emissions. The programme covers all of India (except the islands), driving investor interest in ethanol stocks in India.
Subsidies and incentives for ethanol producers
The government has also introduced several incentives to improve ethanol production. These include reduced GST on ethanol—from 18 percent to 5 percent—and differential pricing based on the raw materials used. The Interest Subvention Scheme helps ethanol producers expand their production capacity. The EBP initiative has also positively impacted the economy—so far, around ₹1.46 lakh crore has been disbursed to distillers and over ₹87,000 crore to farmers.
How is ethanol produced?
In the sugar industry, ethanol is mainly produced from sugarcane, corn, broken rice grains, and other agricultural residues. These feedstocks undergo different processes:
In a molasses-based plant process flow, it all begins with fermentation, where molasses is converted into alcohol with the help of yeast. This mixture then goes through distillation, separating alcohol from water and other components. Part of the output can be used as extra neutral alcohol, while the rest undergoes dehydration to become fuel-grade ethanol. Residues like vinasse are concentrated and sometimes used as support fuel in boilers, minimising industrial waste production.
In grain-based plants, the process starts with milling the grains into flour. This is mixed with water to form a slurry, a thick mixture, which is then liquefied and saccharified before fermentation. After fermentation, the same steps follow—distillation and dehydration—to produce fuel-grade ethanol. A byproduct here is DDGS (Dried Distillers' Grain Solids), often used as animal feed.
While the process appears smooth, capacity and logistics remain key challenges the government is tackling through research, funding, and new policies.
Ethanol is widely used across various industries due to its chemical properties:
Healthcare and life science research: Ethanol is widely used as an antiseptic in hand sanitisers, surface disinfectants, and medical wipes. It is also used as a solvent in chemical synthesis, sample preservation, and other scientific experiments.
Cosmetics: Ethanol is a solvent and stabiliser used in cosmetic products like perfumes, deodorants, and lotions.
Pharmaceuticals: In the pharmaceutical industry, ethanol acts as a carrier in cough syrups and drug formulation.
Food and beverage industry: Ethanol is used to extract and concentrate flavouring substances, like vanilla and essential oils. It is also a key product in alcoholic beverages.
Transportation: By mixing with petrol, ethanol reduces greenhouse gas emissions and dependency on fossil fuels.
With such a growing demand and versatile applications across industries, top ethanol stocks in India have attracted major investor attention in recent years.
Major milestones and future plans
According to the Ministry of Petroleum and Natural Gas, India will require over 1,000 crore litres of ethanol for blending alone to meet its ambitious target of 20 percent blending in petrol and 5 percent blending in diesel. Considering other industrial and beverage needs, total demand is expected to reach around 1,350 crore litres in 2025-26.
India must increase its production capacity to almost 1,700 crore litres to fulfil this, assuming plants operate at about 80 percent efficiency. Such a scale-up demands continuous investment in the sector, supply chain optimisation, and efficient operations across both molasses- and grain-based units.
The government is trying to widen the range of raw materials used in sugar industries for ethanol production. In addition to traditional sources like molasses and grains, the focus is now shifting to lignocellulosic materials, including agricultural and forestry residues, industrial waste, and even algae. This approach supports more sustainable sourcing and helps reduce the depletion of food crops.