Economic Survey 2025–26 shows how maize-linked incentives are altering farm choices—raising the stakes for Budget 2026

India’s ethanol-blended fuel programme has rapidly evolved into a central pillar of the country’s energy security strategy. Its achievements are measurable and significant: lower crude oil imports, reduced foreign exchange outflows, lower emissions, and higher cash flows to farmers. As of August 2025, ethanol blending has substituted roughly 245 lakh metric tonnes of crude oil and saved more than Rs 1.44 lakh crore in foreign exchange. These gains make the programme politically and economically durable as India moves towards E20 blending.

Yet the Economic Survey 2025–26 highlights a second-order effect that Budget 2026 can no longer ignore. As the programme scales, the interaction between administered ethanol pricing and crop-specific productivity gains is beginning to reshape agricultural incentives in ways that have implications for crop diversity and food security.

The Incentive Shift: When Technology Meets Administered Prices

Maize has emerged as the principal beneficiary of ethanol expansion. This reflects not just policy design but underlying agronomic change. National maize yields rose from about 2.56 tonnes per hectare in FY16 to nearly 3.78 tonnes per hectare by FY25, significantly outperforming yield trends in pulses, oilseeds and several coarse cereals, where productivity has stagnated or declined. OECD-FAO projections confirm that global cereal yield growth is increasingly driven by technological improvements, reinforcing maize’s natural competitiveness.

Administered ethanol pricing has amplified this advantage. The government fixes per-litre ethanol prices annually, differentiated by feedstock, with assured offtake by Oil Marketing Companies. Between FY22 and FY25, the administered price of maize-based ethanol grew at a CAGR of nearly 12 per cent—materially faster than ethanol derived from rice or molasses. This has created a strong, persistent price signal in favour of maize cultivation.

Farmers have responded rationally. Between FY22 and FY25, maize production grew at a CAGR of 8.8 per cent and acreage at 6.7 per cent. Over the same period, pulses saw declines in both output and area, while oilseeds and cereals excluding maize recorded only modest growth. In states such as Maharashtra and Karnataka, maize is increasingly displacing pulses, oilseeds, millets and even cotton. Notably, the expected large-scale shift away from paddy has not materialised.

Why This Matters for Food Security

From a food security perspective, these trends are consequential. Pulses and oilseeds are structurally important for India’s nutrition basket and price stability. Their relative decline risks deepening dependence on edible oil imports and increasing vulnerability to global supply shocks. Over time, a narrow cropping response driven by durable price incentives could hardwire imbalances that are costly to reverse.

This exposes an emerging tension between Aatmanirbharta in energy and Aatmanirbharta in food. International experience, documented by the OECD-FAO, suggests that biofuel mandates combined with feedstock-specific incentives can permanently alter cropping patterns if not periodically recalibrated. Mature biofuel economies have responded by introducing feedstock caps, adjustment bands, or a shift towards second-generation biofuels to limit competition with food crops.

India is now approaching a similar inflection point.

What Budget 2026 Should Offer: Recalibration, Not Retreat

The Economic Survey does not argue for slowing ethanol expansion. Instead, it points to the need for policy fine-tuning as scale increases. Budget 2026 should explicitly recognise this transition phase and signal a move from growth-at-any-cost to balanced optimisation.

Three interventions stand out:

First, ethanol pricing must become less static and more responsive. Administered prices should incorporate periodic reviews that account for acreage shifts, food security priorities and relative productivity across crops, rather than locking in persistent advantages for a single feedstock.

Second, Budget 2026 should prioritise productivity revival in pulses and oilseeds. Accelerating yield gains through targeted R&D, improved seed systems and extension support would restore their relative profitability without blunt price interventions, reducing the need for defensive import dependence.

Third, ethanol feedstock expansion must become regionally planned. Aligning maize and other feedstocks with agro-climatic suitability, water availability and existing cropping systems would prevent excessive concentration and reduce unintended displacement effects.

The Strategic Choice Ahead

The ethanol programme has delivered on energy security. Its next phase must deliver policy balance. Budget 2026 is not about choosing between fuel and food, but about designing incentives that allow both objectives to coexist sustainably. The Economic Survey’s evidence suggests that early signals of distortion are already visible. Addressing them now—before they harden into structural imbalances—will preserve the credibility, resilience and political economy of India’s ethanol transition.