Every litre of ethanol comes from somewhere

The Food Corporation of India sells surplus rice — stock beyond buffer norms and National Food Security Act obligations — to ethanol distilleries. The government halted this in July 2023 over food-security concerns, then reversed the ban in August 2024 as rice stocks exceeded 540 lakh tonnes and storage space ran short ahead of the new harvest BusinessToday. The government’s consistent position: this has “no impact” on food inflation, since only surplus-on-surplus is ever diverted.

Independent commentary pushes back on the framing itself, not the numbers: treating a structural procurement surplus as free fuel feedstock “obscures systemic inefficiencies in procurement, storage, and redistribution logistics,” and ignores that rice is highly water-intensive — roughly 2,500–5,000 litres of water per kilogram — in states already facing groundwater stress IDEAS For India.

Short answer: the savings claim is real, but it’s a gross figure, not a net one. The government’s ₹1.36–1.84 lakh crore forex-savings figure is a legitimate import-substitution calculation — litres of ethanol blended times the crude-oil-equivalent cost avoided. What it doesn’t subtract:

• The maize reversal — lost export revenue (maize exports fell ~60% in dollar value in a single year) and a new import bill, both a direct consequence of diverting maize to ethanol Down To Earth.
• Fiscal costs — a ₹4,687 crore interest subvention scheme, GST on biofuel cut from 18% to 5%, and a ₹400 crore benefit from reduced supplier security deposits — none of it subtracted from the headline savings number.
• Pulses and oilseeds crowding-out — independent commentary argues cereal-focused ethanol incentives are pulling farmer acreage away from pulses and oilseeds, crops India already imports heavily Swarajya.

The government has officially confirmed in Parliament that FCI rice is being allocated to ethanol distilleries for fuel production:

Economist Ashok Gulati has called this “the most irrational policy that the government has.” Here’s why:

• FCI procures and stores rice at ~₹42/kg (built on subsidized power and fertilizer)
• FCI sells that same rice to distilleries at ~₹22–23/kg
• The taxpayer bears a ₹20/kg loss on every kilogram diverted
• On 52 LMT, that’s a potential ₹10,400 crore subsidy to fuel producers

The government claims only “surplus” and “broken” rice is diverted. But this argument is weak:

• Broken rice feeds economically vulnerable populations
• It is used in processed foods and livestock feed
• India exported 4 million tonnes of this rice to Africa and Southeast Asia in 2022–23
• Until the diversion began, this grain had market value and food security value

Rice and sugarcane — India’s dominant ethanol feedstocks — are cultivated in India’s most groundwater-stressed zones. Over 75% of districts in Punjab and Haryana are classified as “overexploited” by the Central Ground Water Board. Using this water-intensive crop for fuel contradicts national water policy.

The government has approved 1,212 distillery projects under interest subvention schemes:

• Interest subvention: 6% per annum or 50% of bank interest, whichever is lower, for 5 years
• Ethanol procurement prices: ₹71.86/litre (maize), ₹65.61/litre (sugarcane), ₹60.32/litre (rice)
• Additional OMC incentives: ₹6.87/litre on C-heavy molasses; ₹5.79/litre on maize