The ethanol blending programme is not a bad idea, in itself — it involves at least 20 per cent blending. However, mandating that ethanol producers source a fixed share of feedstock from FCI rice is counterproductive

Written by: Ashok Gulati, Ritika Juneja, Purvi Thangaraj

India produced 154 million metric tonnes (MMT) of rice in 2025-26, surpassing China to become the world’s largest producer. India is also the top rice exporter, with exports of 24.5 MMT in 2025. This accounts for roughly 40 per cent of the global rice trade (61.3 MMT), exceeding the total exported by the next four largest exporters — Vietnam, Thailand, Pakistan and Cambodia. India also gives free food (Rs 5kg/person/month) to about 800 million people under the National Food Security Act (NFSA), of which almost two-thirds is rice. Even after this, the Food Corporation of India (FCI) held rice stocks of almost five times the buffer norm as of April 1. In 2024-25 (FY25), the carrying cost of this extra buffer stock was Rs 10,712 crore. The government has decided to divert significant quantities of broken/damaged rice to ethanol production to reduce these stocks and cut down carrying costs. In FY26, almost 5 MMT of rice has been used to produce ethanol. The economic cost of rice to FCI in FY27 is likely to be Rs 44/kg, while it is being given to ethanol plants at roughly Rs 23/kg, renewing the food-vs-fuel debate and raising questions about who is subsidising whom.

How did India, a country that lived from “ship to mouth” in the mid-1960s, become the world’s largest rice producer, exporter, free distributor, and ethanol maker from the grain? The Green Revolution’s success is only one part of the story. The other, more recent and disturbing, is the story of subsidies, which are wreaking havoc not only on the fisc but also on the environment, through higher greenhouse gas (GHG) emissions, soil degradation, groundwater contamination and biodiversity loss. Let us delve deeper and explore how India can rationalise rice policies for a financially and environmentally sustainable future.

Three interlocking policies seem to be responsible for this situation. First, the open-ended procurement at the minimum support price (MSP). Although the MSP for paddy is Rs 2,369/quintal (2025-26), states often outbid each other. Chhattisgarh pays about 40 per cent above MSP, Telangana about 20 per cent, while others, such as Andhra Pradesh, Odisha, Punjab and Haryana, have their own variants of this competitive largesse either in the form of input subsidy or bonus on top of MSP. Second, free or near-free power across the rice belt. Since rice is a flood-irrigated crop that demands up to 25 irrigations per season, free power is effectively a licence to mine groundwater without consequence. Third, urea is sold at a price that bears no relation to its cost. The retail price of urea has been frozen at Rs 242 per 45-kg bag for years, with the government absorbing 85-90 per cent of the economic cost. India’s own landed import price for urea had spiked to $935-$959/tonne in May — thanks to a modicum of cooling in the Strait of Hormuz conflict, the price now has dropped to a little less than half this amount. Yet, this huge arbitrage drives chronic over-application of urea on paddy fields as well as diversion to other industries and across borders. According to an ICRIER study, the combined subsidies (power, fertiliser and canal water) for paddy cultivation in Punjab amounted to Rs 38,973/hectare in 2023-24. These distorted and politically motivated policies of bonuses over MSP, coupled with highly subsidised power and fertilisers, have resulted in FCI’s stocks overflowing. Rather than fixing the distorted incentive structure that has created such piles of rice, the government has chosen a second exit valve: Pour it into ethanol distilleries.

The ethanol blending programme is not a bad idea, in itself — it involves at least 20 per cent blending. However, mandating that ethanol producers source a fixed share of feedstock from FCI rice is counterproductive. This is like going back to Soviet-era controls. Bureaucracy and politicians love controls as they benefit from rent-seeking. Industry wants freedom to choose the most efficient feedstock — whether maize, sugarcane, or rice — which government policies don’t permit. So, the two strike a deal — rice, whose economic cost to FCI is Rs 44/kg, is sold to ethanol plants at Rs 23/kg on the justification that it is broken and damaged.

Production of a kilogram of rice requires, on average, about 4,000 litres of irrigation water. Even if one assumes half of it percolates back to aquifers, the other half is absorbed partially by the plant, and the remaining evaporates. Transplantation, the dominant practice in rice cultivation, emits large amounts of methane, which is 25 times more potent than carbon dioxide. And when states like Punjab and Haryana use almost 250/kg of fertiliser per hectare, they emit almost 5 tonnes of carbon dioxide/ha as the plant absorbs not more than 35-40 per cent of nitrogen — the rest goes into the environment as nitrous oxide, which is 273 times more potent as a GHG than carbon dioxide, or leaches into groundwater, contaminating it with nitrate. The contamination has been linked to blue baby syndrome, thyroid, diabetes and increased cancer risk. Why are we imposing such hazards on ourselves?This must change. Otherwise, a boon of technology will become a bane of humanity. Wisdom lies in changing the course of the MSP policy. No bonuses, and limit the procurement in all states to not more than 40 per cent of its production. No compulsion on ethanol plants to use rice from FCI. Maize is a much better option for ethanol production. Limit the free supplies under PDS to only the most vulnerable — antyodya — and charge the rest at least half the MSP. Promote direct-seeded rice to conserve water. And above all, fix fertiliser-related issues by moving from subsidies to income support to farmers and decontrolling fertiliser prices. If the Narendra Modi government can implement such reforms, it will do a great service to India’s farmers and our planet.

Gulati is distinguished professor, Juneja a senior fellow, and Thangaraj a consultant at ICRIER. Views are personal

Published Date: July 6, 2026