The study examines the "Ethanol Blending Programme" in India. The study examines the ethanol blended petroleum pricing mechanism in India in comparison with the globally accepted price mechanism. The study finds that the cost of producing ethanol in India varies largely with molasses prices and hence cyclical variations in sugarcane production chiefly determine the cost of ethanol production. The study analyzes the price fixation at Rs. 27 per litre by the government by providing estimates of different expenditure heads of ethanol production costs.