Biodiesel, derived from biomass, offers significant environmental advantages by reducing CO2 and CO emissions and promoting energy self-sufficiency. Currently, biodiesel remains limited to DG sets used by a small number of farmers in India, with minimal adoption in the transportation sector. Numerous challenges impede biodiesel's acceptance. This research focuses on identifying challenges connected to India's biofuel policy, supply chain inefficiencies, and vehicle technology. In terms of cultivation, land management, and the delivery of high yielding varieties to farmers, biofuel policies have failed to encourage indigenous feedstock. Instead, the Biofuel Policy 2022 encourages the imported palm oil sterain. Inconsistencies in the supply chain caused by policies impair the cost effectiveness of biodiesel. Diesel engines in automobiles have compatibility concerns owing to corrosiveness and high fuel consumption due to the fuel's low calorific value. Furthermore, biodiesel causes substantial NOx emissions. This study offers policy-level solutions, such as encouraging the production of domestic feedstocks through efficient management of wastelands. In this approach, farmers may receive high yielding seeds at a reduced cost until the industry is self-sufficient. In addition, Policy Linked Incentive (PLI) scheme can be given to biodiesel producers. A policy like ethanol blending can also be implemented. The biodiesel supply chain, like that of Germany, the United States, Malaysia, and Indonesia, must be optimized. For the technological challenges in diesel engines, the government must use policy intervention, to incorporate engine components suitable for biodiesel, as well as upgrade diesel engines by calibrating electronic control units and with exhaust gas recirculation systems.