Public-sector oil marketing companies are paying approximately Rs 70 per litre for ethanol used in petrol blending. That number is supported by the latest procurement data. The comparison with petrol is more complicated.
Claims that ethanol costs Rs 70 while petrol costs only Rs 45 place two unlike numbers beside each other. The ethanol figure includes the amount paid by oil companies to suppliers, including transport and GST.
The Rs 45 petrol figure is generally presented as a pre-tax refinery or crude-linked estimate. It is not the current nationwide price at which the government or an oil company purchases finished petrol.
The correct conclusion is that ethanol is presently an expensive blending component at moderate crude-oil prices. It is not that the government buys two equivalent finished fuels for Rs 70 and Rs 45.
PSU oil companies procured 679.04 crore litres of ethanol during the 2023-24 ethanol supply year for Rs 48,757 crore. That works out to approximately Rs 71.80 per litre. In 2024-25, procurement increased to 1,033.31 crore litres at a total cost of Rs 73,996 crore. The average was approximately Rs 71.61 per litre.
During 2025-26 up to June, the companies bought 705.43 crore litres for Rs 49,577 crore, averaging approximately Rs 70.28 per litre. Across those three periods, expenditure reached more than Rs 1.72 lakh crore.
The averages include different types of ethanol purchased at different administered prices. Current base procurement rates range from Rs 57.97 per litre for C-heavy molasses ethanol to Rs 71.86 for maize ethanol. GST, transport, storage and handling increase the delivered cost.
It is therefore misleading to say that every litre of ethanol has one fixed Rs 70 purchase price. That is the approximate recent weighted average. The Central government does not directly buy most of this fuel. IndianOil, Bharat Petroleum and Hindustan Petroleum procure it from registered domestic producers under the blending programme.
Petrol does not have a single administered procurement price comparable with ethanol. Its value changes with crude-oil prices, international petrol prices, exchange rates, refinery costs, freight and the pricing methodology used by oil companies.
The current IndianOil price build-up for Delhi shows Rs 81.08 per litre charged to dealers before VAT. Dealer commission adds Rs 4.45 and VAT adds Rs 16.59, producing a retail price of Rs 102.12.
The Rs 81.08 figure is not the cost of the petrol molecule either. It is the price of finished fuel charged to the dealer and includes central duties and other elements. The Rs 45 figure usually quoted in comparisons sits further upstream, before retail taxation and margins. Depending on the calculation, it may represent an estimated refined-petrol component, crude-equivalent cost or an older price-period comparison.
Comparing delivered ethanol including GST and transport with petrol before tax, blending, freight and marketing costs exaggerates the apparent gap. A valid comparison would place both fuels at the same point in the supply chain.
Removing the faulty Rs 45 headline does not mean ethanol is currently cheaper. The petroleum ministry itself says that when crude oil trades near $70 per barrel, producing E20 can cost the same as or more than producing pure petrol.
Ethanol also contains roughly one-third less energy per litre than petrol. An E20 blend consequently carries about 6 to 7 percent less energy per litre than unblended petrol before accounting for engine calibration and ethanol’s higher octane rating. This is why older vehicles may experience a fuel-efficiency decline even when they suffer no mechanical damage.
Assume, purely for illustration, that the comparable petrol blending component costs Rs 45 and ethanol costs Rs 70. Replacing 20 percent of petrol with ethanol would raise the raw blend cost by approximately Rs 5 per litre: Eighty percent petrol at Rs 45 contributes Rs 36, while 20 percent ethanol at Rs 70 contributes Rs 14. The blend totals Rs 50 before other costs. The exact calculation changes with crude, feedstock prices, taxes and logistics, but it shows why E20 is not automatically cheaper at the pump.
The ethanol programme was not designed only to minimise the cost of one litre of fuel under current crude prices. It reduces the amount of petrol derived from imported crude, creates a domestic market for maize, rice, sugarcane juice and molasses, and gives distilleries predictable demand.
Ethanol prices are also less directly exposed to daily movements in Brent crude, international freight and currency markets. The government argues that replacing one-fifth of petrol with a domestically contracted component provides protection when global oil prices rise sharply.
Its own estimate is that the economics reverse when crude reaches approximately $120 to $130 per barrel. At that point, domestically priced ethanol can become cheaper than the petrol it replaces.
This makes blending partly an insurance policy. Like most insurance, it can appear expensive when the insured risk is low and more valuable when the adverse event occurs.
That policy still has costs. Consumers may receive lower mileage, oil companies may face higher blending expenses and the country must account for the water, grain, land and energy used to manufacture ethanol.
E20 and pure petrol are not offered side by side at different market-linked prices. E20 is the standard petrol grade, and its retail price is shaped by taxes and oil-company pricing decisions.
The government has rejected calls to discount E20 according to its lower energy content. A discount would have to be funded through lower taxes, reduced oil-company margins or lower payments to ethanol producers.
The accurate headline is therefore not that the government irrationally pays Rs 70 for a fuel available for Rs 45. PSU oil companies currently procure ethanol at an average of roughly Rs 70 per litre. At moderate crude prices, that ethanol can cost more than the equivalent petrol component, especially after accounting for its lower energy content.
The programme continues because the government values energy security, domestic agricultural demand and protection against future oil-price shocks alongside the immediate per-litre cost.
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