The Cabinet approved the National Policy on Biofuels which allows doping of ethanol produced from damaged foodgrains, rotten potatoes, corn and sugar beet with petrol to cut oil imports by Rs 4,000 crore this year alone.
Till now, only ethanol produced from sugarcane was allowed to be mixed in petrol.
A meeting of the Union Cabinet, headed by Prime Minister Narendra Modi, approved the new policy which categorises biofuels as First Generation (1G), which produce bio-ethanol from molasses and bio-diesel from non-edible oilseeds.
Second Generation (2G) ethanol can be produced from municipal solid waste and Third Generation (3G) fuels like bio-CNG.
"The Policy expands the scope of raw material for ethanol production by allowing use of sugarcane juice, sugar containing materials like sugar beet, sweet sorghum, starch containing materials like corn, cassava, damaged food grains like wheat and broken rice, and rotten potatoes," an official statement said.
It also allows use of surplus food grains for production of ethanol for blending with petrol with the approval of National Biofuel Coordination Committee, it said.