Rice-to-Ethanol Policy - Deepening Economic and Environmental Stress (UPSC-RAS) Current Affairs

Core argument -three overlapping subsidy-driven policies have caused India's rice economy to pile up huge surpluses, and government's fix diverting rice to ethanol is only treating the symptom, not the disease. In the process, it's worsening both fiscal stress and environmental damage (groundwater, GHG emissions, fertiliser contamination).

India produced 154 million metric tonnes (MMT) of rice in 2025-26 -overtook China to become world's largest producer.
Also world's top rice exporter 24.5 MMT exported in 2025, about 40% of global rice trade (61.3 MMT), more than the next four biggest exporters (Vietnam, Thailand, Pakistan, Cambodia) combined.
Under NFSA, India gives free food (5 kg/person/month) to approx 800 million people, almost two-thirds of it rice.
Even after this, FCI held rice stocks at almost 5 times the buffer norm as of April 1
In 2024-25, carrying cost of this extra buffer stock was Rs 10,712 crore.
Government's response - divert broken/damaged rice to ethanol production almost 5 MMT of rice used for ethanol in FY26.
Economic cost of rice to FCI in FY27 likely Rs 44/kg, but it's being given to ethanol plants at roughly Rs 23/kg this gap is fuelling the "food vs fuel" debate.

Open-ended procurement at MSP. MSP for paddy is Rs 2,369/quintal (2025-26), but states often bid it up further Chhattisgarh pays approx 40% above MSP, Telangana 20% above, with Andhra Pradesh, Odisha, Punjab and Haryana all running their own versions of bonus-on-MSP schemes. This competitive one-upmanship between states keeps pulling in more rice than the country needs.
Free or near-free power across the rice belt. Since rice is flood-irrigated and needs up to 25 irrigations a season, free power effectively becomes a free licence to mine groundwater without any real cost check.
Underpriced urea. Urea is sold at a price that bears no real relation to its cost. Retail price has been frozen at Rs 242 per 45-kg bag for years, with government absorbing 85-90% of the actual economic cost. Meanwhile India's own landed import price for urea spiked to $935-959/tonne in May (due to the Strait of Hormuz conflict giving some temporary cooling), and has now dropped to a bit less than half that. This arbitrage between subsidised domestic price and market price drives excessive urea use on paddy fields, and even diversion of subsidised urea to other industries or across borders.

Producing 1 kg of rice needs about 4,000 litres of irrigation water. Even assuming half percolates back into aquifers, the rest is absorbed by the plant or evaporates a real net groundwater loss.
Transplantation (the dominant rice-growing method) emits large amounts of methane a GHG 25 times more potent than CO2.
States like Punjab and Haryana use almost 250 kg/hectare of fertiliser. Since the plant absorbs only 35-40% of the nitrogen applied, the rest either becomes nitrous oxide (a GHG 273 times more potent than CO2) or leaches into groundwater as nitrate contamination.
This nitrate contamination has been linked to blue baby syndrome, thyroid problems, diabetes, and increased cancer risk.

No more bonuses on top of MSP ; cap procurement in every state at not more than 40% of that state's production.
No compulsion on ethanol plants to use FCI rice let maize be used instead, since it's a much better ethanol feedstock.
Limit free food under PDS to only the most vulnerable (antyodaya category); charge others at least half the MSP.
Promote direct-seeded rice (DSR) to cut groundwater use.
Fix fertiliser subsidy distortions by shifting from input subsidies to direct income support for farmers, and decontrol fertiliser pricing.

On ethanol blending itself clear that the ethanol blending programme (which involves at least 20% blending) is not a bad idea in itself. Their objection is narrower mandating that ethanol producers source a fixed share of feedstock specifically from FCI's rice stock. They compare this kind of input-mandate to "Soviet-era controls," arguing industry should be free to pick the most efficient feedstock (maize, sugarcane, or rice) rather than have government dictate it.