Sugar and the politics over price: Import order fuels ethanol debate

Govt's sugar import order sparks debate over ethanol diversion and exports amid a perceived supply shortage

The Centre’s decision last week to permit imports of 1 million tonnes (mt) of raw sugar, after a gap of almost 10 years, to tame surging retail prices has sparked an intense debate among political parties, experts and industry representatives. The debate centres on the accuracy of production estimates, the diversion of sugar for ethanol and exports at a time when the country was facing a supply shortage, and the broader policy governing the sector.

 

Sugar has long been a politically sensitive commodity in India, given its ramifications across major sugar-producing states such as Uttar Pradesh, Maharashtra and Karnataka.

 

With Assembly elections in Punjab and Uttar Pradesh due within the next eight months, the decision to import sugar has also acquired a political colour.

 

Over the past few days, major Opposition parties, including the Congress and the Samajwadi Party, have come out openly against the Centre’s move to permit imports after such a long gap. 

 

Congress President Mallikarjun Kharge, in a post on social media platform X, said that ahead of the festivals, the bitterness of the Narendra Modi-led government’s policies had seeped into the sweetness of sugar.

 

He posed three questions to the Centre: Why are sugar stocks in India, the world’s largest sugar producer and exporter, at their lowest level in nine years? “How did we reach the point of halting exports and importing 1 mt of sugar duty-free?” he asked.

 

Kharge also asked why sugar had become nearly 40 per cent more expensive in three months, burdening consumers ahead of the festival season. He also questioned why, if the country was facing a sugar shortage and importing the sweetener, the government was not reviewing its policy of diverting sugarcane and grain to produce ethanol for E20.

 

“What kind of ‘Self-Reliant India’ is this?” the Leader of Opposition in the Rajya Sabha said.

 

“First, sugar production declined, then stocks reached their lowest level in nine years, now we’re importing sugar from abroad — and on the other hand, we’re throwing sugarcane into ethanol to blend with petrol!” Kharge added.

 

The Congress has also previously questioned the government’s decision to blend 20 per cent ethanol with petrol, citing studies and reports on its possible impact on mileage and engine life. The import decision has given the party further ammunition to target the Union government.

 

It had called for a review of the E20 policy, describing the fuel policy as “anti-people” and unacceptable.

 

The Samajwadi Party, too, questioned the use of sugarcane for ethanol production, alleging that blending ethanol with petrol for profit while raising sugar prices to maximise gains was benefiting only a few people. Reports said the party was planning to distribute cheap sugar at 200 locations across Uttar Pradesh over the next few days.

 

The Centre, for its part, defended its ethanol policy and discounted reports of any shortage of sugar in the country. In a statement, it said it was incorrect to attribute the recent increase in sugar prices to the diversion of sugar for ethanol production.

 

In fact, the share of sugar diverted for ethanol has declined from 12 per cent in 2022-23 to 9 per cent in 2025-26. Moreover, nearly three-fourths of the ethanol produced in the country now comes from grains, particularly maize.

 

“The present increase in sugar prices is due to a combination of factors, including lower-than-expected domestic production, increased demand ahead of the festival season, weather-related damage to the sugarcane crop, tightening global sugar supplies and speculation and hoarding by some sections of the industry,” the official statement said.

 

The government said that, instead, the diversion of excess sugar towards ethanol had helped address a structural problem in the sector and improved the financial health of sugar mills. The results are visible, it said. As of August 20, 97 per cent of sugarcane dues for the 2025-26 sugar season had already been paid to farmers.

 

The central government also claimed that the improved financial position of sugar mills had reduced their dependence on government support.

 

“While around ₹14,600 crore of subsidy was provided to the sugar industry between 2014 and 2021, no such subsidy has been announced since 2021-22,” it said.

 

At the same time, the government said sugar prices for consumers had remained broadly stable over the longer term, increasing by only around 3 per cent annually between August 2024 and July 2026.

 

Some experts believe that with the Uttar Pradesh Assembly elections round the corner, there is a limit to how far the government can afford to drive down sugar prices through higher imports or by reducing diversion towards ethanol.

 

Otherwise, cane dues could start building up in the 2026-27 season, which begins in October.

 

“From the industry’s perspective, prices around ₹50 per kg would be positive. Sugar production costs are estimated at ₹42-43 per kg. Over the past couple of years, mills have in many cases sold sugar below production costs, putting pressure on their finances. Sustained ex-mill prices around ₹50 per kg would therefore help improve the financial position of sugar mills — something which they have struggled to have since the last few years on a sustained basis,” a senior industry official recently told Business Standard.