• Does FCI or Union Budget bear the loss of selling rice at a loss to ethanol producers? Maize uses much less water, produces lower greenhouse gas emissions, and does not divert a staple food grain away from people. In contrast, using rice for ethanol means turning food into fuel.

E20 fuel had brought Ethanol (ETH) in the news. On the subject, my latest article is What is the Impact of CRUDE OIL Prices on India and in 2006 wrote Pay your farmers, not OPEC . Then ethanol was made only from sugar.

Today ethanol (ethyl alcohol) is made from a variety of grains like rice and maize.

A Hindustan Times report stated, “The Food Corporation of India (FCI) sold surplus rice to ETH plants at app 40% below its acquisition cost between June 2025 and June 2026, according to a government report. While sold for ₹2,250–₹2,320 per quintal, the acquisition cost was ₹3,719–₹3,889 per quintal.”

“Under the Open Market Sale Scheme (Domestic), the price for ETH 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.” 2

“The government plans to release 7.2 million tonnes of rice from FCI stocks for ETH in the 2026-27 at about ₹23,900 per tonne, against an economic cost of roughly ₹43,100 per tonne.” 2

This is a loss of Rs 19,200/ per tonne. If 7.2 million tons is supplied the loss to FCI is app Rs 13, 825 crores. If the loss is borne by FCI the Centre would need to fund FCI sooner than later, like done earlier. If loss is borne by the Centre, it has to be shown in the Union Budget. If the former, it might call for smart accounting. My 2019 article Ideas to clear the FCI Mess

Since the pricing of ETH, end to end, is not in public domain the above interpretation might vary.

“Use of damaged food grains and broken rice (Tukda) fell to 99,000 tonnes from 1.79 million tonnes a year earlier.” If either of the two were used, the purchase price of rice would be lower. Tukda is a by-product during rice milling and sold by rice millers. ESY is ethanol supply year, begins in November and ends in October. 

Another HT report (How FCI rice is driving govt’s ethanol push) of 31 July said, “Maize is the most profitable stock for ethanol production but government has mandated 40% to be sourced from FCI rice. Now grain-based feedstock accounts for about 67% of ethanol supplied, balance is sugar cane. Cane is crushed for about five months in a year while rice/maize available round the year. Maize usage increased from .83 million tons in 2022-23 to 7.5 million tons in 2023-24 and 13.1 million tons in 2024-25 before falling to 6.8 millions tons in 2025-26 because FCI rice supply increased.” 

Has the government mandated 40% FCI rice usage to liquidate surplus stocks with FCI, only the government can answer? According to Ricetoday.com, “The current stock of rice (including in the form of paddy) is nine times more than the buffer norm of 76.1 lt (as on January 1).” Hindu Business Line

As per a Search, “In a Business Standard column, A.K. Bhattacharya highlights that the government's ₹50,000 crore capital expenditure boost for the Food Corporation of India (FCI) was an advance aimed at reducing reliance on commercial bank borrowings, effectively adjusting against future food subsidies. This budgetary allocation significantly inflates the headline capital expenditure figures while technically serving as an internal accounting adjustment.” Source

The government stores rice in excess of buffer norms and then sells it at a loss to ethanol producers.  

A question – Rice is a water guzzler, is it suitable for ETH. “The NITI Aayog estimated that sugarcane and paddy together use 70% of the country’s irrigation water; hence, there is a need for change in crop pattern to reduce dependence on one particular crop and to make ethanol production more environmentally sustainable.” 5

Table 1 Top 5 Rice Producing States FY      In Million Tonnes                              

*Economic Survey 2025-26. @ Dept of Agriculture

The largest rice producers are Uttar Pradesh, West Bengal, Telangana and Punjab of which Punjab has ground water levels falling significantly. Hand pumps run on diesel or free power are used to pump out water. 

I wrote in 2017, “Punjab produced 17.74 million tonnes of paddy and 11.8 million tonnes of rice in 2016. The crop required 59.5 lakh crore litres of potable water assuming it requires about 5,000 litres of water to produce 1 kg of rice.” “Research has shown that it takes more than three times the water to grow paddy in Punjab compared to the flooded plains of Bihar or West Bengal. 1

If FCI is using Punjab rice in large quantities for ETH, implications are worse!

Fortunately, indigenous rice varieties have reappeared in Tamil Nadu, Karnataka, Kerala and West Bengal thanks to ‘Save Our Rice Campaign’ and initiatives like that of Dr Debal Deb (established models of self-sustainability established founder of the rice seed banks Vrihi and Basudha) amongst others. Many varieties have climate resilient properties like Kattuyanam in Tamil Nadu, which is drought and flood resistant.

As per Economic Survey 2025-26 largest producers of maize in 2024-25, in million tons, were Madhya Pradesh (6.64), Karnataka (6.19) and Bihar (5.47).

Nevertheless is Maize a better option. Read these blogs.

According to Jain Irrigation Systems blog, “Maize is preferred over other cereals because it has less water requirement compared to rice, least pest and disease problem. Though maize can be grown in all the seasons because of the favourable climatic conditions, it is mainly grown as major Kharif crop in most States in India and Rabi crop in Andhra Pradesh and Tamil Nadu.

According to Krishibazaar.in blog, “Maize is a highly profitable crop with applications ranging from food to industry. By following scientific farming practices—right seed selection, balanced nutrition, timely irrigation, and integrated pest management—farmers can achieve higher yields and better profitability.”

According to Swasya.com blog, “It thrives best in warm, moist weather. Ideally, you want temperatures between 20°C to 30°C. If it drops too low or hits a massive frost, the crop just stops growing. On the flip side, it can tolerate heat up to 35°C, but anything beyond that during the flowering stage will mess up your cob development. It needs about 50 to 100 cm of evenly distributed rain. Here’s the catch though, maize is a bit of a goldilocks crop when it comes to water. It absolutely hates drought, but it hates waterlogging even more.” 

“Maize cultivation is done in two production environments namely traditional maize growing areas (Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh) and non-traditional maize areas, (Karnataka and Andhra Pradesh).” 5

If a larger % of farmers should use hybrid seeds, it shall boost production. 5

Why growing maize is eco-friendly compared to rice? A search states, “Maize uses roughly 10 times less irrigation water than flooded rice production. Rice paddies are flooded, creating anaerobic conditions that release large amounts of methane (CH₄), a potent greenhouse gas.” Frontiers.in Farmers who use drip irrigation for maize production shall further reduce water requirement. 5

In a 2024 article in MINT, economist Madan Sabnavis wrote, rice and wheat offer the highest income per hectare even though their net gain per kg of output is lower than other crops.

Table 2 Cost, Income, Yields of Rice and Maize

India needs to increase domestic output of maize by expanding area under crop OR.

India should explore importing Maize.

A search states the biggest producers to be U.S., China, Brazil and Argentina. A good way to reduce trade deficit with USA and strengthen relations with Brazil and Argentina.

Liberalising maize imports would need changing the policy concerning import of genetically modified (GM) grains as most of the corn available for imports belongs to that category.  GM Seeds used for industrial purposes might not be of concern to its opponents unless there is something I do not know.

Summary

Maize uses much less water, produces lower greenhouse gas emissions, and does not divert a staple food grain away from people. In contrast, using FCI rice for ethanol means turning food into fuel while selling it below its actual cost, creating a burden on taxpayers.

Maize is also a better industrial feedstock and encourages farmers to shift away from water-intensive paddy cultivation. Increasing maize production or importing if needed would reduce pressure on food stocks, save water, cut emissions, and make India's ethanol programme more sustainable.

“In India, the major driver of maize demand comes from poultry feed. Therefore, any shift in its use must consider feed/food security implications.” 5

The government needs to share reasons for its decisions and initiate a debate. The U.S. Iran War has made India realize the need to reduce crude imports. Transparency build trust.  

Errors if any are inadvertent and without an intent to malign or defame.

Also read and References

1. Save every drop of water

2. HT report Loss on Sale of FCI rice

3. Setback for crop diversification in Punjab – maize down, paddy up Express

4. Maize biggest feedstock for ethanol – FE

5. Maize for Bioethanol Production – National Academy of Agricultural Sciences

6. Use Maize instead of grain says Ashok Gulati - MINT

I am grateful to Business Standard senior columnist Shri Surinder Sud (writes on agriculture) for sharing insights.

I am a Senior Chartered Accountant and do not claim to be an expert on agriculture.