The Food Corporation of India (FCI) sold rice to ethanol distilleries at ₹2,250-2,320 per quintal between June 2025 and June 2026, roughly 40% below its average acquisition cost of ₹3,720-3,889 per quintal, according to a written reply to the Rajya Sabha on Tuesday.
Event Context
Minister of state for consumer affairs, food and public distribution Nimuben Jayantibhai Bambhaniya, replying to a question by MP Ashok Singh, said FCI dispatched 6.35 million tonnes of rice worth ₹14,596.78 crore from its warehouses to ethanol plants over the 12-month period.
Haryana received the largest quantity among the top five recipients at 844,141 tonnes, followed by Uttar Pradesh at 838,645 tonnes, Punjab and Himachal Pradesh combined at 658,952 tonnes, West Bengal at 584,672 tonnes, and Madhya Pradesh at 432,485 tonnes.
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Under the Open Market Sale Scheme (Domestic), the price for ethanol distilleries was ₹2,250 per quintal from June to October 2025 and ₹2,320 per quintal from November 2025 to October 2026. It has been set at ₹2,390 per quintal for November 2026 to June 2027.
FCI’s average acquisition cost stood at ₹3,719.72 per quintal in 2024-25 and ₹3,889.46 per quintal in 2025-26 (revised estimates). Acquisition cost is what FCI spends to procure rice from farmers; economic cost is the total of procurement, storage, transport and carrying charges until distribution or sale.
The government maintained in the reply that no subsidy is being extended to ethanol producers, saying rice is sold at the fixed OMSS (D) price. The reply did not explain the gap between the sale price and FCI’s acquisition cost.
The reply also disclosed that two cases of diversion of FCI rice meant for ethanol production had been detected. State food departments had taken action against the two distilleries, and FCI had discontinued further allocation of rice to them, she said. The reply did not name the distilleries.
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GK Sood, an agriculture expert and independent director at a listed agriculture company, said the sale amounts to an effective subsidy because the rice is being sold below economic cost.
“The government plans to release 7.2 million tonnes of rice from FCI stocks for ethanol in the 2026-27 ethanol supply year at about ₹23,900 per tonne, against an economic cost of roughly ₹43,100 per tonne,” he said. “Unless this is accounted for separately in the Union Budget, the difference will ultimately be reflected under the food subsidy bill.”
Sood added that while the government has justified the move on the grounds of disposing of surplus stocks, the policy raises questions that go beyond stock management. “Rice is already produced with substantial subsidies, is highly water-intensive and is procured at high minimum support prices. The larger question is why such large quantities are produced and procured only to be diverted for ethanol production at a significant cost to the exchequer,” he said.
For distilleries, the pricing works backwards from what oil marketing companies pay for ethanol under the blending programme. Madan Sabnavis, chief economist at Bank of Baroda, said: “The pricing appears to have been fixed keeping in mind the economics of fuel pricing.”
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The parliamentary reply comes as the government pushes to expand ethanol blending with petrol by widening the range of feedstocks, including surplus rice held in FCI stocks. A total of 7.2 million tonnes of rice has been allocated for ethanol production in the 2026-27 ethanol supply year (November-October), up from 5.5 million tonnes in the ongoing year, at the ₹2,390 per quintal price notified for the period, according to DFPD notifications.
FCI procures rice at MSP under an open-ended commitment — whatever farmers bring in Punjab, Haryana, Telangana, UP, Chhattisgarh and elsewhere, FCI buys. Procurement has consistently outrun what the Public Distribution System and welfare schemes can absorb. Stocks have run well above buffer requirements for years — sometimes double or more.
