In the year 2008, the Government of India announced its National Policy on biofuels, mandating a phase-wise implementation of the programme of ethanol blending with petrol in various states. This study examines demand and supply aspects of the ethanol blending policy (EBP) of the Government of India. In the last two years, the demand from the industrial sector could not be fully met domestically and was met by imports. The study examines the main sectors using ethanol. The preparedness of the automobile industry is a major factor in the successful implementation of this policy. In this context the issue of compatibility of vehicles to different levels of ethanol blending is also analyzed.