There’s no scenario without externalities where it benefits. The only way it works out is,
Engines that can take ethanol blended petrol
infrastructure for storage, transport of ethanol
ability of companies to manage seasonality of ethanol generation via sugar crop
All the 3 above demand subsidies initially, hence an externality. Once this is in place, everytime there is a bumper crop of sugar, your petrol price might be cheaper by about 2 rs or so.
I liken this to Germany’s renewables push; so much subsidy that it distorted the electricity generation market where renewables were cheaper than the coal plant. They closed them and the only nuclear plant and now the unintended side effect is, Germany eleccy prices are the highest in EU and they have blackouts now to shortage and need spot buying. And they’re destroying old pristine forests to make sure they have the base load at least.
In so far as ethanol in India is concerned, I suspect, we’d have higher sugar subsidy which would have a knockon political impact as farmers rush in to get the MSP cash.
We know it in tomatoes, potato crops don’t we? Boom and bust cycles. 