The Indian government has announced a major policy shift to address rising sugar prices and potential shortages. For the 2026-27 supply year, oil marketing companies (OMCs) have been directed to set sugar diversion for ethanol production at zero. This means sugarcane juice, sugar syrup, and B-heavy molasses will no longer be used for ethanol, ensuring all available sugar goes to human consumption.
The move comes as retail sugar prices hit record highs due to reduced rainfall and weak agricultural yields in key sugarcane-producing states like Maharashtra and Karnataka. The government aims to maximize sugar output and build national buffer stocks ahead of the festive season, as last year's production barely met domestic demand of 280 to 285 lakh tonnes.
Despite halting sugar-based ethanol production, the government remains committed to its biofuel blending roadmap. OMCs have invited bids for 11 billion litres of ethanol, shifting entirely to grain-based alternatives like maize, broken rice, and surplus foodgrains. This pivot supports the country's Ethanol Blended Petrol (EBP) Programme, which has already achieved a 20% blending target nationwide ahead of the original 2030 deadline.
India's total ethanol production capacity stands at nearly 2,000 crore (20 billion) litres, with OMCs issuing tenders exceeding 11 billion litres annually to maintain the base 20% mandate. The government is now exploring higher blending options, including E25, E27, and flex-fuel alternatives up to E85, in collaboration with auto manufacturers.