UPSC Mains Answer Practice — GS 3 : Questions on ethanol blending and remittances (Week 159)

QUESTION 2

What are remittances? Discuss why remittances are considered a relatively stable source of foreign exchange inflows for India.

QUESTION 1: How can ethanol blending contribute to reducing India’s current account deficit and strengthening energy security? Discuss the challenges associated with the proposed transition from E20 to E25 fuel in India.

Relevance: Ethanol blending is directly related to energy security, reduction of crude oil import dependence, and management of the current account deficit. The topic aligns with UPSC themes of sustainable growth, renewable energy, and government initiatives for resource efficiency. The topic is important for understanding policy trade-offs in achieving energy security while balancing economic and environmental objectives.

Note: This is not a model UPSC answer. It only provides you with a thought process which you may incorporate into the answers.

Introduction:

— Ethanol blending involves mixing ethanol, a biofuel derived from agricultural feedstocks, with petrol. Recently, the Union government exempted higher ethanol-petrol blends (22%-30% ethanol) from central excise duty, putting their tax treatment on a par with the 20% ethanol blend (E20) that’s currently the standard at pumps.

— The government is looking to progressively increase ethanol blending in petrol from the current E20 level to E25, before transitioning towards flex-fuel vehicles and E85-E100 fuels.

Body:

You may incorporate some of the following points in your answer:

Role of ethanol blending in reducing India’s current account deficit and strengthening energy security

— Ethanol blending reduces crude oil imports, lowering foreign exchange expenditures. It also encourages domestic manufacturing of fuel replacements, which benefits the trade balance.

— It would also contribute to lowering vulnerability to geopolitical upheavals in oil-producing regions.

— India now imports almost 88.5% of its crude oil needs, leaving the economy and energy security exposed to global upheavals. Ethanol blending promotes a long-term shift to flex-fuel and alternative fuel ecosystems.

Fuel flex vehicle.

Challenges

— Ethanol has a higher content of water, which is corrosive. So, E20 or higher ethanol blends could damage the parts of the internal combustion engine. This is especially true for older engines and the ones used on two-wheelers, where high-grade aluminum or steel casts are not used for the engine block.

— Many customers had flagged a drop in mileage after the E10 to E20 shift. The drop could be between 5-12%, depending on when the car was manufactured.

— Vehicle owners in India currently do not have an option to choose different fuels at the petrol pump, unlike their counterparts in Brazil — a country that has successfully and structurally integrated ethanol with its automobile ecosystem.

— Regular ICE cars running on higher ethanol blends are hard to start on winter mornings because ethanol burns at a higher temperature than petrol.

— While a fuel with 10% ethanol (E10) makes little difference to a car’s performance, anything above that level is said to cause problems in engines that aren’t specifically built for it. The impact could be higher in the transition from E20 to E25 than from E10 to E20. E25 is what the government is now targeting as the base fuel, up from the current E20.

Conclusion:

— The government has proposed amendments to recognise 85% ethanol-blended fuel and 100% ethanol fuel under the Central Motor Vehicles Rules. The government maintains that the rollout of higher ethanol-petrol blends will only be done after proper testing and consultations. The Bureau of Indian Standards (BIS) also notified fuel standards for these higher ethanol blends.

(Source: Explained: The worries in India’s push beyond E20 fuel — and lessons it can take from Brazil)

Points to Ponder

How can the ethanol programme benefit farmers and promote rural development?

What lessons can India learn from countries such as Brazil regarding higher ethanol blends and flex-fuel vehicles?

Related Previous Year Question

How can India achieve energy independence through clean technology by 2047? How can biotechnology can play a crucial role in this endeavour? (2025)

QUESTION 2: What are remittances? Discuss why remittances are considered a relatively stable source of foreign exchange inflows for India.

Relevance: The topic is linked to external sector management, foreign exchange reserves, and the economic contribution of the Indian diaspora. Remittances are a major component of India’s current account receipts and play an important role in maintaining Balance of Payments (BoP) stability.

Note: This is not a model UPSC answer. It only provides you with a thought process which you may incorporate into the answers.

Introduction:

— Remittances are funds sent by Indian workers overseas to their families and dependents in India.

— Workers’ remittances reached a new high of $110.47 billion in FY26, surpassing the $100 billion threshold for the first time and making a significant contribution to India’s external sector stability.

Body:

You may incorporate some of the following points in your answer:

Remittances as a stable source of foreign exchange inflows for India

— Despite capital withdrawals from financial markets and low net FDI inflows, India posted a Balance of Payments (BoP) surplus of $7.22 billion in the January-March 2026 quarter, boosted by significant remittance inflows.

— Remittances contributed to support the rupee at a time when inflows from FPI and FDI had decreased. Without such inflows, the currency could have experienced more depreciation pressures.

— In 2025-26 as a whole, Indian workers abroad sent back home a record $110.47 billion, up 26% from $87.55 billion in 2024-25, with economists suggesting that the West Asia crisis likely led to a “precautionary” rise in remittances.

Source: RBI

— The rupee’s depreciation in FY26 encouraged abroad Indians to send more money, since each unit of foreign currency converted into more rupees for receivers in India.

Conclusion:

— This is the first time that workers’ remittances have ever crossed the $100-billion-mark in a single year. However, as per the RBI’s latest survey on remittances, inflows from the Gulf countries of UAE, Saudi Arabia, Kuwait, Qatar, Oman and Bahrain had declined from 47% in 2016-17 to 38% of the total in 2023-24.

— The fall in the Gulf region’s share in India’s inward remittances has been matched by an increase in contribution from advanced countries such as the US and the UK — regions grappling with the impact of increasing adoption of artificial intelligence (AI) on current and future employment.

(Source: Record remittances cushioned India’s finances in FY26, but this is no long-term fix)

Points to Ponder

How are they different from FDI and FPI?

How do remittances contribute to India’s Balance of Payments and foreign exchange reserves?

Related Previous Year Question

Foreign Direct Investment (FDI) in the defence sector is now set to be liberalized. What influence this is expected to have on Indian defence and economy in the short and long run? (2014)

Previous Mains Answer Practice

UPSC Essentials: Mains answer practice — GS 3 (Week 158)

UPSC Essentials: Mains answer practice — GS 3 (Week 157)

UPSC Essentials: Mains answer practice — GS 2 (Week 156)

UPSC Essentials: Mains answer practice — GS 2 (Week 157)

UPSC Essentials: Mains answer practice — GS 1 (Week 158)

UPSC Essentials: Mains answer practice — GS 1 (Week 157)

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