Sugar prices in India have risen sharply in recent weeks, raising concerns about production, domestic availability and the diversion of sugar towards ethanol as part of  India’s E20 fuel program that mandates petrol blended with 20% ethanol, aiming to reduce crude oil imports among other things. 

Critics have slammed Prime Minister Narendra Modi's government's blending policy for the sugar crisis and also for the reduced fuel efficiency of automobiles. The government, however, says the current price increase should not be attributed mainly to ethanol production.

According to the Ministry of Consumer Affairs, the average retail price of sugar increased from ₹48.18 per kg on July 20, 2026, to ₹55.70 per kg on August 20, an increase of about 16% in one month.

The main concern is lower-than-expected sugar production. The government now expects production in the current season at around 306 lakh tonnes (LMT), compared with an earlier estimate of 343 LMT. This is a reduction of about 11% from the initial estimate. The government attributes the lower output partly to Red Rot and Top Borer diseases and waterlogging caused by excessive rainfall in sugarcane-growing areas.

At the same time, demand is expected to increase because of the upcoming festival season. The government has also cited tighter global sugar supplies and speculation or hoarding as factors behind the recent price rise. International sugar prices increased from $474 per tonne on June 30 to $552 per tonne on August 20, a rise of more than 16%.

The Economics and Politics of Ethanol

Ethanol has become an important part of India’s sugar economy. Sugarcane and its by-products can be diverted from sugar production towards ethanol, which is blended with petrol. This gives sugar mills an additional source of revenue and can help reduce their dependence on sugar sales.

However, the government says the proportion of sugar diverted towards ethanol has actually fallen from around 12% in 2022-23 to around 9% in 2025-26. It also says that nearly three-fourths of India’s ethanol production now comes from grains, particularly maize.

Therefore, it would be misleading to say that the current sugar-price increase is simply the result of ethanol production.

Ethanol nevertheless remains important because it changes the economics of the sugar industry. In years when India produces more sugar than it consumes, diverting part of the surplus towards ethanol can reduce excess stocks and improve the cash flow of sugar mills. The government says this has also helped improve payments to farmers: by August 20, 97% of sugarcane dues for the 2025-26 season had been paid.

The Supply-Demand Balance

India normally produces around 320–340 LMT of sugar annually, while domestic consumption is estimated at around 280–290 LMT. In a normal surplus year, this difference allows India to maintain stocks and export some sugar.

The present season is different because production has fallen considerably below the original forecast. Industry estimates reported by Reuters put actual sugar production at about 27.9 million tonnes, or 279 LMT, after accounting for diversion towards ethanol, while domestic consumption is estimated at roughly 28–28.5 million tonnes.

This explains why the market has become more sensitive to changes in supply, even though the government maintains that the country has enough sugar to meet domestic requirements until the next crushing season.

To increase availability and control prices, the government has allowed 10 LMT (1 million tonnes) of raw sugar to be imported duty-free. It has also taken measures against excessive stockholding and speculation.

The next major development will be the start of the new crushing season in October. The government expects sugar production in October to rise significantly as mills begin crushing fresh cane.

Ethanol Alone not to Blame

The current rise in Indian sugar prices is the result of several factors rather than ethanol alone. Lower-than-expected production—from an initial estimate of 343 LMT to about 306 LMT—is central to the supply concern. Weather damage, disease, festival demand, global prices and market speculation have added to the pressure.

Ethanol remains an important structural part of the industry, but the latest government data show that the share of sugar diverted towards ethanol has declined to about 9%, from 12% in 2022-23. The immediate question for the sugar market ahead of the main festival season in India is less about whether ethanol exists and more about whether domestic sugar production and stocks will be sufficient to meet enhanced demand until the next crushing season.

(The writer is a retired Special Secretary, Government of India, and a commentator on financial, geoeconomic and regional issues. The views expressed are personal. He can be reached at ppmitra56@gmail.com.)