India is one of the fastest growing economies of the world, with its gross domestic product (GDP) growing at an average annual rate of over seven per cent since 2004. To maintain this rate of growth, energy inputs are critical. However, concerns that the conventional sources of energy will be exhausted have prompted the nation to view bio-fuels as a potential alternative to conventional liquid fossil fuels. In this regard, ethanol has emerged as an important renewable fuel for transportation purposes. 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 varies with molasses prices and hence cyclical variations insugarcane production largely determine the cost of ethanol production.