Ethanol Blending Disaster Hits Indian Households

India's ambitious plan to mix ethanol with petrol was touted as a solution to reduce crude-oil imports and lower petrol prices. However, instead of benefiting consumers, the introduction of E20 has taken a heavy toll on vehicles and household budgets.

The average cost of producing or procuring ethanol is around 66 to 72 rupees per liter, which is higher than the refinery cost of pure petrol when crude oil prices are near $70 a barrel. This has led to concerns over mileage, compatibility, and the effect on older vehicles.

Consumers have been forced to opt for ethanol-free, ultra-premium fuel, which is expensive. The public outcry became louder when sugar prices surged dramatically in recent weeks, reaching around 70 rupees a kilogram in some markets. The government has responded by permitting duty-free imports of one million tons of raw sugar.

The diversion of sugarcane for ethanol production has contributed to rising sugar prices and higher food costs. Corn is now being used for ethanol production, with around 37 percent of India's corn going to distilleries. This has led to a rise in egg prices by around 35-40 percent over the past year.

The government has defended its policy by arguing that it uses surplus grain and gives farmers an additional market. However, the danger is not necessarily that every grain will disappear into an ethanol plant, but rather that diverting one commodity can set off a chain reaction across several others.