With the draft Corporate Average Fuel Efficiency (CAFE-3) norms under discussion, the Indian Sugar and Bio-Energy Manufacturers Association (ISMA) has urged the government to incorporate stronger incentives for flex-fuel vehicles (FFVs), arguing that the ethanol industry is facing a growing surplus capacity beyond projected E20 demand.

In a letter dated April 13 to Power Secretary Pankaj Agarwal, ISMA Director General Deepak Ballani said that provisions promoting flex-fuel vehicles and electrified flex-fuel vehicles should be explicitly included in the CAFE-3 framework. The association has flagged that unless vehicle technology adoption accelerates, the country risks significant excess ethanol supply in the coming years.

The intervention comes at a time when the government, in consultations with the automobile industry on draft CAFE-3 norms, is considering the introduction of E25 fuel blends in the near future as part of India’s broader ethanol blending roadmap.

GST rationalisation

Ballani has also called for fiscal support to improve market acceptance of flex-fuel vehicles. Speaking to businessline, he said that there should be rationalisation in Goods and Services Tax (GST) for such fuel and brought to the level of electric vehicles (EVs) at 5 per cent. At present, GST on petrol and diesel vehicles not exceeding four metres in length and with engines between 1200cc and 1500cc stands at 18 per cent, while larger luxury cars and SUVs attract GST of up to 40 per cent.

Emphasising the technological advantage of flex-fuel systems in the evolving fuel mix environment envisioned under CAFE-3, Ballani said: “The beauty of flex fuel is that it can take any blend – it can take E20 or E22 also, E50 or E100 or E85 also – so there should not be any binding to the customer. Tomorrow, if the customer wants to fill E20 or E22, the engine will take it. The flexibility should be given to the customer...whatever is cheaper, the customer has the choice to fill that fuel.”

He cautioned, however, that large-scale transition to flex-fuel vehicles will require time and sustained policy support. According to him, even though the policy direction is clear, fleet transformation cannot occur immediately. At the same time, he noted that widespread conversion of internal combustion engine (ICE) vehicles to flex-fuel capability would place India in a strong global position in terms of energy flexibility.

Drawing parallels with global practice, Ballani pointed to Brazil’s experience. He said that in Brazil today, consumers choose fuels based on price, switching between blends such as E27 and E100 depending on affordability.

Ethanol supply

On ethanol supply capacity, a central issue to the CAFE-3 debate, Ballani said India is already producing far more ethanol than is required for current blending targets.

“Today, we have a capacity of producing 2,000 crore litres and 400 crore litre capacities coming up in this year itself. Then next year we will have the capacity of producing 2400 crore litres. For producing 20 per cent of ethanol blending, we only need 1,100 crore litres. And, even if you do 22 per cent blending, it’s only about 100 crore litres...so, we’ll still have overcapacity.”

Against this backdrop, the association has urged the government to revisit provisions in the draft CAFE-3 norms that, in its view, may weaken incentives for flex-fuel adoption. In particular, ISMA has expressed concern over the proposed reduction in the volume derogation factor for flex-fuel vehicles from 1.5 to 1.1.

Calling the move counterproductive, Ballani said: “This is an unexpected development, especially in the current context of energy crisis and ethanol surplus facing India, more so as there has been full convergence on this issue amongst stakeholders throughout. This is likely to discourage introduction of FFVs.”

Industry stakeholders believe the final design of the CAFE-3 norms will play a decisive role in shaping India’s vehicle technology mix, particularly as policymakers attempt to balance fuel efficiency targets, ethanol utilisation and long-term energy security.

Published on April 19, 2026