Ethanol’s kamikaze run

On 22 and 23 October, the environment ministry’s expert committee will consider three distillery proposals. GM Sugar & Energy wants to expand its Haveri, Karnataka plant from 120 to 510 KLPD. MSRT Industries plans to grow its Belagavi unit from 60 KLPD to 300 KLPD multi-feed. Veer Vallabh Green Bio Energy is seeking approval for a new 207 KLPD grain distillery in Ahilyanagar, Maharashtra. Together they would add about 837 KLPD, or roughly 28 crore litres a year at full output.

The timing is hard to explain.

The sugar door has closed

The oil marketing companies have left cane-based ethanol out of their contracts for the 2026–27 supply year, which starts in November. Drought in Maharashtra and Karnataka cut the 2025–26 sugar crop to 30.6 million tonnes, about 11% below early estimates. After diversion, net sugar supply was around 279 lakh tonnes, just below normal consumption of 280–285 lakh tonnes. The government has chosen sugar for kitchens over sugar for fuel tanks. Two of the three proposals are from Karnataka, where the drought hit hardest.

Grain is not a safe bet

Grain now supplies about three-quarters of India’s ethanol, mainly maize. That is where everyone is heading, and the market is already full. Installed capacity stood at about 1,990 crore litres as of November 2025. For 2025–26, the OMCs allocated about 1,048 crore litres against offers of 1,776 crore litres. More than 350 distilleries said their orders were inadequate. One Karnataka plant, VINP Distilleries, had its quota cut by 58%, went to court and won in the Karnataka High Court. The OMCs have appealed to the Supreme Court, arguing that installed capacity does not entitle a plant to a bigger allocation.

So why keep building?

Several reasons make the run look less suicidal than it first appears:

• A clearance is an option, not a commitment. Securing approval now costs little. Building comes later, if the market allows.

• The bet is on E27 or E30. The industry is lobbying for blending above 20%, which would absorb today’s surplus. Capacity that is idle at E20 becomes essential at E30.

• Allocation rules reward location. Distilleries have complained that the 2025–26 tender favoured new entrants in deficit zones over established surplus units. Building in the right place can matter more than national overcapacity.

• Hedging. MSRT’s multi-feed design can switch between molasses and grain. Veer Vallabh’s plan includes rectified spirit, extra neutral alcohol and an IMFL bottling line, giving it the liquor market as a fallback if OMC orders fall short.

The risk

If blending stays at 20%, India will have nearly twice the capacity it needs, and the losers will be the single-feed, fuel-only plants that depend on OMC orders. The expansions are a wager on policy, not on the current market. Whether that is kamikaze or foresight will depend on the next blending mandate.