Citizens Have 5 Economic Reasons to Oppose the Government’s E25 Petrol Plan

From the Editor’s Desk

July 7, 2026

The central government is reportedly considering delaying its plan to increase the amount of ethanol mixed with petrol from the current 20% to 25%. The government’s rationale is that the move would reduce India’s dependence on imported crude oil, lower some vehicle emissions and create a bigger market for Indian farmers. However, these stated public policy objectives overshadow several economic principles that lie behind citizens’ opposition to the proposal.

Ethanol is a type of alcohol made mainly from crops such as sugarcane and maize. Cars designed for E20 fuel, such as the current petrol versions of the Maruti Suzuki Dzire, Maruti Suzuki Swift, Hyundai Creta, Tata Nexon and Mahindra XUV 3XO, use different materials and engine calibration, but many older vehicles were never built with that in mind. At present, no passenger car sold in India is officially certified by its manufacturer for E25 petrol.

The government has asked the Automotive Research Association of India (ARAI) to study how E25 affects existing vehicles, but its findings have not yet been made public. ARAI has already completed a study related to E20, although it has not been published. However, media reports about the unpublished study say ARAI reportedly found that prolonged use of E20 in vehicles designed only for E10 led to deterioration of certain rubber components in the fuel system and recommended that some of those parts might need replacement.

Here’s what happens when ethanol is added to petrol. Petrol travels from the fuel tank to the engine through pipes, pumps and small rubber seals that prevent fuel from leaking. Many older petrol cars were designed for fuel containing much less ethanol. Ethanol is more chemically active than petrol. Over several years, a higher ethanol content can make some older rubber parts become hard, swell or crack. It also absorbs more water than petrol, which can increase corrosion in some metal parts of the fuel system. Because ethanol contains less energy than petrol, cars also have to burn slightly more fuel to travel the same distance, reducing mileage.

This means some older vehicles could wear out more quickly, travel fewer kilometres on a litre of fuel or require repairs because of the new fuel. That raises an important economic question. Is it fair for the government to ask one section of society to bear the costs of a policy that is intended to benefit the whole country?

Even citizens who support the government's goal of reducing oil imports have sound reasons, based on established principles of economics, to oppose such a policy.

Let’s begin with “consumer sovereignty,” one of the basic ideas of a market economy, that consumers should have meaningful choices. They should be able to choose products that suit their needs, provided those products meet safety and legal standards. Someone who bought a petrol car in 2018 did so on the understanding that the fuel available at petrol stations would be suitable for that vehicle. If the government gradually removes that fuel from the market, the owner loses that choice. The issue is whether governments should change the conditions under which people made expensive purchasing decisions years earlier.

Another principle is that those who receive the benefits of a policy should also share its costs.

In economics, a policy is judged not only by the benefits it creates, but also by who pays for those benefits. India as a whole may benefit from importing less crude oil. Farmers growing sugarcane and maize may also benefit from greater demand for ethanol, while the government could reduce its oil import bill and strengthen the country’s energy security. But if owners of older petrol cars have to spend money on repairs, modifications or extra fuel because their vehicles become less fuel-efficient, they end up bearing a larger share of the policy’s cost than everyone else.

The third principle is the protection of investment and property.

A car is one of the largest purchases many families ever make. People usually expect it to serve them for 10 or 15 years. Governments, therefore, are expected to provide stable conditions that allow people to make long-term financial decisions with confidence. If fuel standards change in a way that reduces the value of existing vehicles or increases the cost of running them, owners may reasonably feel that the basis on which they decided to buy the vehicle has changed. It can therefore be argued that governments should avoid imposing unexpected costs on investments people have already made. If such changes become necessary in the public interest, they should be introduced gradually, predictably and with enough time or assistance for people to adjust.

Yet another concern is “transition costs,” which are the costs people incur while adjusting to a new government policy or economic change.

Reforms should improve the economy over the long run, even if they involve adjustment costs. Good economic policy, however, seeks to keep those costs as low as possible. If the government believes E25 is the future, the question is how people are expected to make that transition. Why can’t the government wait until most vehicles on Indian roads are compatible with E25 before making it the standard fuel? Or, the government could consider providing incentives to help owners of older vehicles adapt.

The fifth principle is “cost-benefit analysis.” Before introducing a major public policy, governments are expected to compare all its benefits with all its costs. It is relatively easy to calculate how much foreign exchange India could save by importing less crude oil or how much extra income farmers might earn by selling more ethanol. What’s more difficult, but equally necessary, is estimate the costs. A proper economic analysis requires all these factors to be counted. Citizens have a legitimate basis to question the policy if they believe some of these costs have been underestimated or ignored.

There may be nothing inherently wrong with the government's ethanol policy. Governments can also reasonably ask some groups to make sacrifices to achieve larger national goals, particularly in difficult circumstances. The question, however, is whether those sacrifices are truly necessary, shared fairly across society and supported by strong evidence.

You have just read a News Briefing, written by Newsreel Asia’s text editor, Vishal Arora, to cut through the noise and present a single story for the day that matters to you. We encourage you to read the News Briefing each day. Our objective is to help you become not just an informed citizen, but an engaged and responsible one.