For many years, India's ethanol story revolved around scaling up quickly enough to achieve challenging blending goals. However, the situation has suddenly changed; the nation is producing considerably more ethanol than it can use, and in order to maintain capacity, new markets are being sought for. This is despite the fact that customer opposition against India's E20 rollout is intensifying.
According to industry players, the nation is thinking about exporting ethanol to its neighbors, such as Bangladesh, Indonesia, and Nepal, which have 10% ethanol blending targets but insufficient feedstock and distillation capacity. According to Bharti Balaji, deputy director general of the All India Distillers' Association (AIDA), "we are seeking ethanol exports, because that would help in interim period to move out some surplus from country."

Many nations, such as Bangladesh, Indonesia, Nepal, and others, have opened up 10% mandates. All distilleries will benefit temporarily from exporting excess ethanol.
According to a May analysis by CareEdge Ratings, India's ethanol production capacity has surpassed 20 billion liters annually, with an additional 4 billion liters scheduled to come online this fiscal year.
But demand hasn't kept up. Only about 11 billion liters are absorbed annually by the government's E20 blending program; the remaining 3–3.5 billion liters are consumed by non-fuel users such as chemical, pharmaceutical, and alcohol producers. Almost 7 billion liters of capacity remain unutilized.Distilleries are running at roughly 60% capacity, demonstrating the strain on manufacturing floors. Over the next three years, analysts predict utilization to be between 65 and 75 percent. The majority of the regional excess is anticipated to fall on Maharashtra, a significant ethanol hub. Indeed, not all of the ethanol produced is turned into fuel. Undenatured ethanol, which is used in country liquor, pharmaceuticals, laboratories, and Indian Made Foreign Liquor (IMFL), accounts for over 18.7% of demand.
Due to consumers switching from country liquor to IMFL, the related extra neutral alcohol (ENA) market reached around 3.8 billion liters in 2025 and is expanding at a rate of roughly 5% per year. Additionally, ethanol and ENA are used to make antiseptics, vaccinations, medicines, cosmetics, detergents, and hand sanitizers—a category that is growing by 9–11% a year.

According to the Grain Ethanol Manufacturers Association of India, exports of first-generation ethanol made from sugarcane, maize, or grain are presently prohibited.Only second-generation ethanol made from biomass and agricultural residue was approved for export, and that was only in September 2025. Tanzania, Angola, Kenya, and other African countries receive the majority of India's non-fuel-grade ethanol exports, with smaller amounts going to Iraq and Nepal. Although it currently lacks the feedstock and distilling capacity, Nepal is considering a 10% blending rule, and discussions are expanding to the larger SAARC area.Ashish Gaikwad, managing director of Praj Industries, is placing a wager on a completely new fuel, bio-isobutanol, which he claims is prepared for commercial scale-up with the first order anticipated this quarter. "Our bio-isobutanol (Bio-IBA) technology is ready for commercialisation and scale-up, and we expect the first order in the current quarter of FY27," Gaikwad said to ET.