Economic Survey flags risks of biofuel incentives on cropping patterns

New Delhi: The Economic Survey has cautioned that biofuel mandates and feedstock-specific price incentives can lead to long-term distortions in cropping patterns and food price dynamics if they are not periodically recalibrated.

Drawing on international experience, the Survey notes that durable and concentrated incentives may unintentionally favour certain crops over others, with implications for agricultural diversity and food security.

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India has mandated doping petrol with 20 percent ethanol. The government annually fixes administered per-litre ethanol prices differentiated by feedstock, with assured offtake by oil marketing companies.

As India's ethanol blending programme matures, the Survey argues for a comprehensive policy roadmap that takes a holistic view of both energy and food security.

It calls for measures to accelerate yield improvements in pulses and oilseeds to restore their relative profitability, avoid distortions in input and output markets that confer undue advantages on specific ethanol feedstocks, and enable targeted, planned expansion of ethanol crops aligned with regional resource endowments.

Such an approach, the Survey says, would preserve the economic rationale of ethanol expansion while ensuring that energy security objectives are not pursued at the cost of food security or nutritional outcomes.

India's programme to mix ethanol in petrol, a key pillar of the country’s energy security strategy, has delivered significant gains in recent years, including lower crude oil imports, reduced foreign exchange outflows, lower emissions, and higher payments to farmers.

As of August 2025, ethanol blending has helped save more than Rs 1.44 lakh crore in foreign exchange and substitute about 245 lakh tonnes of crude oil.

As blending targets rise towards 20 per cent (E20), the programme has expanded beyond sugar-based feedstocks to include food grains, particularly maize. While this diversification has enabled rapid scaling, evidence suggests that administered ethanol pricing, combined with technological advances in maize cultivation, is reshaping cropping incentives, with potential implications for crop diversity and food security.

Maize production has risen sharply, supported by productivity gains and favourable market signals. National maize yields increased from about 2.56 tonnes per hectare in FY16 to around 3.78 tonnes per hectare by FY25, while yields for several oilseeds, pulses and millets have stagnated or declined.

OECD-FAO projections similarly attribute global cereal yield growth largely to technological improvements, making maize increasingly attractive to farmers even without policy support.

Ethanol pricing has reinforced this trend. The government fixes administered ethanol prices annually, differentiated by feedstock, with assured offtake by oil marketing companies.

Between FY22 and FY25, the administered price of maize-based ethanol rose at a compound annual growth rate of 11.7 percent, faster than ethanol derived from rice or molasses, creating a strong price signal in favour of maize. The policy was partly intended to encourage a shift away from water-intensive paddy cultivation, but a reduction in paddy acreage has not materialised.

Instead, maize production and cultivated area expanded at CAGRs of 8.77 per cent and 6.68 percent, respectively, between FY22 and FY25. Over the same period, pulses saw declines in both output and acreage, while oilseeds and cereals excluding maize posted modest growth.

The area under oilseeds grew at a CAGR of 1.7 percent, and cereals excluding maize at 2.9 percent. The shift is most visible in states such as Maharashtra and Karnataka, where maize is increasingly competing with pulses, oilseeds, millets, cotton and soybean for land, water and labour.

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