India has built far more ethanol-making capacity than its fuel programme can use. Installed capacity has reached about 20 billion litres, up from roughly 421 crore litres in 2014. Another 4 billion litres are expected to come online this year.

The mandatory E20 petrol blending programme takes in only about 11 billion litres a year. Other uses such as liquor, pharma and chemicals absorb another 3 to 3.5 billion litres. That leaves nearly 7 billion litres of capacity without an identified buyer, according to industry reports.

Distilleries are running at barely 60% capacity, and utilisation is projected at 65 to 75% over the next three years. Around 100 new distillery units were commissioned in the 2024-25 cycle. Their owners now face extended payback periods.

For 2025-26, oil marketing companies contracted 10 billion litres for fuel blending. Maharashtra alone is projected to face a 2.77 billion-litre surplus. India hit its 20% blending target in ESY 2025-26, five years early, which is when the glut began to appear.

The surplus puts pressure on policymakers to find new buyers, such as flex-fuel vehicles or exports, for India's idle ethanol plants.