In recent parliamentary sessions, the government has underscored the importance of the ethanol blending programme, citing its benefits for farmers and significant foreign exchange savings. Industry bodies like the Grain Ethanol Manufacturers’ Association (GEMA) have further estimated that higher blending levels could unlock substantial additional foreign exchange savings. With the blending rate climbing from 1.5 per cent in 2013-14 to a targeted 20 per cent by 2025-26, ethanol is fast becoming a significant component of India’s energy mix, making India one of the few large economies to achieve such a high ratio. However, this shift necessitates a corresponding update in how fuel prices are reported. Currently, while the blending targets are ambitious, the pricing structure remains static.
As part of the blending programme, petrol sold in retail outlets is blended with ethanol. From a production standpoint, ethanol and petrol are two entirely different products, with ethanol taxed under the Goods and Services Tax (GST) regime, whereas petrol remains outside it. This distinction is crucial in understanding how taxes and prices flow through the system and why consumers deserve greater transparency in the determination of the final price of blended petrol.
Two fuels, two tax systems
Ethanol used for blending attracts 5 per cent GST (18 per cent when used for other industrial purposes), while petrol is taxed through central excise and state-level value-added tax (VAT). The dual tax structure originates from India’s partially reformed fuel taxation regime, where petroleum products were exempted from the GST framework. Consequently, oil marketing companies (OMCs) pay GST on ethanol purchases but cannot claim an input tax credit, since the final product, that is, petrol, is not a GST-taxable item.
This makes the ethanol component appear more expensive than it actually is, as the GST paid on it becomes a non-recoverable cost. The ethanol price paid by OMCs includes the ex-mill price, GST, and transportation charges. Based on official data, the weighted average procurement cost of ethanol in 2024-25 was Rs 71.32 per litre, while the base price of petrol charged to dealers (excluding excise duty, VAT, and commission) was Rs 53.07 per litre, which increases to ₹74.97 after adding central excise duty.
As per the latest price break-up of petrol, published by the Ministry of Petroleum and Natural Gas and oil marketing companies, the current price structure for Delhi is as follows: Base price (ex-depot) is Rs 53.07, Central excise duty is Rs 21.90, dealer commission is Rs 4.40, and State VAT is Rs 15.40 per litre. These add-ons to the base price bring the total retail selling price to Rs 94.77 per litre in Delhi, the price consumers see at the pump. However, these numbers correspond to petrol, not ethanol-blended petrol (E20), which now constitutes almost all the petrol sold across India.
Despite this major shift, there is no published price build-up for blended petrol. In other words, while India has changed the composition of its retail fuel, the public price disclosure still reflects the structure of 100 per cent petrol.
This lack of transparency hides important fiscal and consumer information. Under current tax provisions, ethanol blended into petrol is exempt from central excise duty, provided the petrol portion has borne excise and the ethanol portion has paid GST. However, the VAT levied by states applies to the entire blended fuel, not just the petrol portion. As a result, even though ethanol is already taxed under GST, the blended product is again taxed under VAT, with no clarity on how this affects the effective tax incidence or the overall cost structure.
The key issue is not double taxation per se, but the absence of clarity on how much each component contributes to the final price. With ethanol now forming one-fifth of every litre of petrol sold, treating the entire blended fuel as if it were pure petrol distorts fiscal understanding. This opacity prevents a meaningful evaluation of whether blending leads to lower or higher costs for the economy as a whole and for consumers at the pump.
Why transparency matters
India’s Ethanol Blended Petrol programme is often lauded for cutting import bills and supporting farmers; however, without a transparent price build-up, it is difficult to assess the fiscal trade-offs between reduced oil imports, shifts in tax revenues, and the final cost impact on consumers.
As the blending ratio increases further, the share of ethanol-related costs in the final fuel price will continue to grow. In such a scenario, continuing to publish price break-ups for “petrol” instead of “blended petrol” risks obscuring the actual cost structure of the fuel that consumers are paying for.
Making the price build-up of blended petrol public, including the ethanol share, its procurement cost, and its tax treatment, would enhance accountability, improve fiscal coordination between the Centre and states, and give consumers a clear picture of what they are paying for. Publishing a detailed price build-up for blended petrol, alongside the existing one for pure petrol, would be a simple yet powerful reform. It would allow policymakers to track whether blending delivers economic benefits, and would help consumers understand how much of every rupee at the pump goes to petrol, ethanol, taxes, or margins. Blended petrol is now India’s default petrol. It deserves a transparent price disclosure that reflects its true value.
The writer is a Research Associate at CSEP. The views expressed are the writer’s own and not those of CSEP
As the blending ratio increases further, the share of ethanol-related costs in the final fuel price will continue to grow. In such a scenario, continuing to publish price break-ups for “petrol” instead of “blended petrol” risks obscuring the actual cost structure of the fuel that consumers are paying for. 
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