Hit hard by rising oil prices, India has expedited efforts to boost local output of oil and a transition to alternative fuels to cut its import bill.
The source said India has been mixing about 10.5% ethanol with gasoline for the last three months.
The government hopes to save up to Rs 50,000 crore ($6.45 billion) in this fiscal year from ethanol blending.
The world’s third biggest oil importer and consumer relies on foreign suppliers for about 85% of its demand.
India’s gasoline demand is already rising at a brisk pace as people prefer to travel in their own vehicles to avoid a heatwave.
This source said India’s gasoline demand rose by about 14% in the first half of May from the same period in the previous month, while that of gasoil rose by about 2%.
The Union Cabinet on Wednesday approved changes in the biofuel policy to bring forward target for 20% ethanol blending with gasoline to 2025-26 from 2030, a government statement.
The government has allowed use of more feedstock for production biofuels and their export in ‘in specific case’.
So far, India allows use of items such as surplus rice and maize, molasses, sugarcane juice, sugar, and damaged food grains.