India's Ethanol Delusion

India’s Jet Fuel Folly: Why Domestic Ethanol Is A Net Economic Drain

As oil prices climb, with the conflict in West Asia showing no signs of closure, and the shortage of aviation turbine fuel (ATF) hits major airlines, India has tried to nudge airlines into blending ethanol into ATF. 

The entire policy of trying to substitute a largish chunk of products refined from imported crude with indigenously produced ethanol is misguided. Ethanol blending is neither environmentally friendly nor sparing on the use of foreign exchange.

As things stand, 56% of ethanol available from domestic sources is made from grain — corn, and even rice. Only the rest comes from sugarcane. 

All crops are grown in India using large quantities of fertilisers and water for irrigation, often pumped up from deep underground. Fertilisers are import-intensive, even when produced in domestic factories. The natural gas or naphtha used is mostly imported. 

Further, crops in India are subsidy-intensive. The power for pumped irrigation is supplied for free, maintenance of canal irrigation is free, even in those few instances when canal water is paid for, fertiliser is heavily subsidised, and grain is often supported by official procurement at fancy prices. 

The government allowed 5.2 million tonnes of rice from the Food Corporation of India’s stocks to be fermented for ethanol production last year.

The Corn Problem

This is not the only problem. When the demand for corn goes up, because of higher demand for ethanol, farmers abandon crops like soybean, a vital source of edible oil. India is a major importer of edible oils. Greater cultivation of corn for ethanol will force India to import additional quantities of edible oils, draining foreign exchange. The problems do not stop here.

Corn is the principal ingredient of chicken feed. The more corn is diverted for ethanol, the less there is of it for feeding chickens, increasing egg and chicken prices, and adding to the malnutrition Indians already suffer.

The only ethanol used up in the air must be what is served along with in-flight meals (the ordinary tippler might baulk at his drink being dubbed ethanol, but from the point of view of chemistry, what is blended into fuel and what is best had on the rocks are both, in essence, ethyl alcohol, or ethanol).

In other news…

US President Donald Trump’s assault on the global economy and, in particular, the world’s poor, continues. While he has extended the Iran ceasefire indefinitely, American forces continue to commit piracy, boarding and taking over ships that the US had sanctioned over the export of Iranian oil. 

The Trump administration struggles to reach an agreement on Iran’s nuclear programme that matches, at least, the deal that Obama had negotiated and Trump had torn up in his first term as President.

As the US President continues to demonstrate his disdain for India, India must rethink its slide, under the present administration, into deeper entanglement with the US and Israel than a policy of strategic autonomy would warrant. 

Geopolitics. Active conflict. Commodity shocks. Sentiment swings.

The forces reshaping markets in 2026 go well beyond economics, and the rules of strategic decision-making are being rewritten in real time.

The Core and EDGE Community invite a select group of senior leaders, founders, and investors to a closed-door conversation on navigating uncertainty led by financial journalist Govindraj Ethiraj.

Limited seats. By invitation only.

58.3

That’s India’s HSBC Flash India Composite PMI Output Index for April, pointing to a solid start to the financial year with steady expansion in overall business activity, according to data compiled by S&P Global.

Setting: The index is up from 57.0 in March, helped by stronger demand, especially on the manufacturing side. “The survey indicated that firms are building buffer stocks to manage the uncertainties around the longevity of the supply-side shock,” said Pranjul Bhandari, chief India economist at HSBC.

Manufacturing picked up pace, with its PMI rising to 55.9 on the back of improved production and new orders. Services activity also stayed strong at 57.9, indicating continued resilience in sectors linked to consumption and business services. Together, both segments contributed to the rise in the composite index, pointing to fairly broad-based growth.

What’s Next: Input costs are still elevated, and ongoing tensions in West Asia could affect supply chains and demand. The key thing to watch now is whether this demand momentum can hold in the coming months.

Bernstein Flags Risks

Asset management firm Bernstein has written a letter to Prime Minister Narendra Modi, urging the government to rethink India’s infrastructure strategy, arguing the country has over-invested in aviation while underinvesting in rail and mass transit. It says India should prioritise high-speed rail, metro systems and buses, rather than relying on air travel, which is costlier, fuel-intensive and import-dependent.

By the Numbers: The report flags employment as the key fault line, warning that generative AI threatens a significant share of IT and services jobs while India captures limited value from the technology. It adds that manufacturing has not scaled fast enough to absorb labour, while agriculture employs nearly half the workforce but contributes only ~15-16% of GDP.

What’s Next? The report calls for earlier, bolder policy action to build domestic innovation capacity. It urges support for AI capability, faster EV adoption, stronger agri and infrastructure investment, and a shift from subsidies towards long-term capex and R&D.

Fuel Freeze Fallout

State-owned fuel retailers are losing approximately Rs 20 per litre on petrol and Rs 100 per litre on diesel, with pump prices frozen for nearly four years despite surging global oil prices, joint secretary in India's ‌oil ⁠ministry Sujata ​Sharma said on Thursday.

Separately, the Ministry of Petroleum and Natural Gas dismissed reports of a Rs 25-28 per litre hike following assembly elections, stating no such proposal was under consideration.

Overview: Tensions in the Strait of Hormuz reportedly escalated after Iran broadcast footage of commandos seizing a cargo vessel, signalling tightened control over the world's most critical shipping lane following the collapse of US-brokered peace talks.

Setup: The broader global economy faces mounting pressure from the ongoing Iran conflict, with soaring energy costs pushing up inflation, straining factory output, weakening services sectors, and raising concerns over food security and growth forecasts worldwide.

Detained And Forgotten?

Following labour unrest in Noida's industrial sectors, delegations from the All India Lawyers Union, Students' Federation of India, and Democratic Youth Federation of India alleged at a press conference on Thursday that about 800 workers had been detained by Uttar Pradesh Police. While the exact numbers remain unconfirmed, the delegation claims several of them are still in detention.

Context: The workers had been demanding a minimum wage increase. Gangeshwar Dutt Sharma, district secretary of CITU Noida, told The Core that wages in the region were last revised in 2014, unlike Delhi and Haryana, where revisions have since occurred. Even the post-protest wage revision for Noida remains lower than in both neighbouring regions.

The Core previously reported on contract labourers in Noida decrying safety lapses and inadequate pay.

Catch Up Quick: The delegation, which visited the Kasna detention facility in Greater Noida, documented constitutional violations, including failure to inform families, absence of arrest memos, and non-production before magistrates. It is demanding immediate disclosure of FIRs, family notification of arrest details, and legal aid through the Legal Services Authority.

Eyewitness accounts and a remand notice suggest the total number of arrested persons may be between 1,000 and 1,200, it said.

H1-B Crackdown Bill

A US lawmaker has introduced a bill in Congress to pause new H-1B visa issuances for three years, cut the annual cap from 65,000 to 25,000, and prioritise applicants earning over $200,000. The proposal also targets outsourcing firms, bars multiple job filings, and tightens rules around dependents. 

Setup: A Republican lawmaker said the system “has been abused to replace American workers with cheaper foreign labour.” Another added, “The federal government should work for hardworking citizens, not the profit margins of massive corporations.”

Context: The bill builds on tightening moves from last year, when the US introduced a $100,000 fee on new H-1B petitions for workers hired from outside the country, significantly raising costs for employers and discouraging overseas hiring. Indians, who account for the majority of H-1B recipients, would face the sharpest impact. 

Markets Turn Nervous

On Episode 855 of The Core Report, financial journalist Govindraj Ethiraj talks to M.V. Ramana, Professor; Simons Chair in Disarmament, Global and Human Security at the University of British Columbia and a nuclear power expert.

• The war goes into a holding zone with renewed threats as markets turn nervous

• Brokerage Bernstein says India has overfunded aviation at the cost of rail

• Official Government figures on how much oil retailers are losing per litre of petrol and diesel sold

• HSBC says India now looks less ​attractive than North East Asian equities

• What are fast breeder reactors and how does India benefit by having them?