The Indian government is considering restrictions on diverting sugarcane juice, syrup and B-heavy molasses for ethanol production during the 2026-27 Ethanol Supply Year to protect domestic sugar availability. Concerns over lower sugar production, particularly due to drought conditions in major producing states such as Maharashtra and Karnataka, have raised the possibility of tighter supplies and higher prices. The proposed move aims to ensure sufficient sugar stocks for domestic consumption while keeping prices under control.
During the 2025-26 sugar season, Indian sugar mills diverted approximately 30 lakh tonnes of sugar for ethanol production, accounting for around 10% of total sugar output. According to industry estimates, opening sugar stocks on October 1, 2026, stood at approximately 37.5 lakh tonnes, compared with nearly 50 lakh tonnes a year earlier. The lower opening inventory has intensified concerns about the availability of sugar in the domestic market. 
The government has previously taken measures to manage sugar prices and domestic availability, including restrictions on exports and steps to regulate imports. However, importing sugar could become more expensive if global production declines due to El Niño-related weather conditions and international prices increase. Against this backdrop, restricting sugar diversion for ethanol production is being considered as another measure to protect domestic supplies. An official notification was expected before October 31, 2026, according to the reported industry developments.
India's sugar production during the 2025-26 season is estimated to have fallen below earlier expectations. Initial projections were around 343 lakh tonnes, but estimates were subsequently reduced to approximately 306 lakh tonnes, including sugar diverted for ethanol production. After accounting for the sugar used for ethanol, net sugar production was estimated at around 279 lakh tonnes, compared with annual domestic consumption requirements of approximately 280–285 lakh tonnes.
Despite the proposed restrictions, industry experts believe India could continue pursuing its target of blending 20% ethanol with petrol. The country's ethanol industry has increasingly shifted towards grain-based feedstocks, particularly maize, reducing its dependence on sugar-based raw materials. Government figures indicate that the share of sugar diverted for ethanol declined from around 12% in 2022-23 to approximately 9% in 2025-26.
A restriction on sugar-based ethanol feedstocks could also influence the economics of sugar mills. With more sugar available for sale in the domestic market, mills could benefit from improved sugar realisations, although the overall impact would depend on government pricing policies, production levels and market demand.
The government's final decision will be important for sugar manufacturers, ethanol producers, farmers and fuel suppliers. Balancing domestic sugar availability with ethanol blending requirements remains a key policy challenge for India's sugar and biofuel industries in the 2026-27 season.
