Sugar has suddenly become another pressure point in the household budget. Retail prices rose from ₹48.18 a kg on July 20 to ₹55.70 on August 20, a jump of nearly 16% in just a month. With the festive season approaching, when consumption typically rises, the increase has naturally reopened an old debate: is India producing too much ethanol at the expense of sugar?
The government says the answer is no. And the available numbers support that argument, at least for the present price spike.
Sugar production in the current season is now estimated at around 30.6 million tonnes, well below the initial estimate of 34.3 million tonnes. Crop damage, excessive rainfall and waterlogging have affected output. At the same time, festive demand is rising and the government has pointed to speculation and hoarding as additional reasons for the sharp increase in prices. Global supplies are also tight, with international sugar prices rising more than 16% between June 30 and August 20.
More importantly, the share of sugar diverted for ethanol has actually declined. According to the government, around 9% of sugar is being diverted towards ethanol in 2025-26, compared with roughly 12% in 2022-23. Nearly three-fourths of India’s ethanol production now comes from grains, particularly maize. It is therefore difficult to blame the present sugar price increase primarily on ethanol diversion.
But that should not end the discussion.
India has built one of the world’s fastest-growing ethanol programmes. Blending in petrol has climbed from about 1.5% in 2014 to 20% in 2025-26. Since 2014-15, the programme has saved more than ₹1.91 lakh crore in foreign exchange and substituted about 31 million tonnes of crude oil imports. It has also created another revenue stream for farmers and sugar mills.
Those gains are too significant to abandon every time sugar prices rise.
For years, India had the opposite problem. Surplus sugar piled up, mills struggled with cash flow and payments to sugarcane farmers were delayed. Diverting excess sugar towards ethanol gave mills an alternative market. The government says 97% of cane dues for the 2025-26 season had been paid by August 20. India also normally produces about 32-34 million tonnes of sugar against consumption of around 28-29 million tonnes.
The lesson, therefore, is not that India must choose between sugar and ethanol. It is that the policy must remain flexible enough to protect both.
This season is a good example. When output falls substantially below expectations, domestic availability should automatically receive greater weight. Ethanol diversion, sugar exports, imports and stock limits should respond quickly to updated crop estimates rather than waiting for prices to signal distress.
The government has already imposed a 400-tonne stock limit on dealers until November 30, tightened rules for bulk consumers and allowed 1 million tonnes of raw sugar to be imported duty-free. It has also sought an earlier start to crushing from October 15 to improve festive-season availability.
These are necessary interventions, but a more predictable system would be better than emergency corrections.
India’s ethanol programme is now too important for energy security, farmers and the sugar industry to be caught in a recurring food-versus-fuel argument. Equally, consumers should not be expected to absorb steep food-price increases in the name of energy transition.
The sensible path lies between the two. Protect ethanol when sugar is genuinely surplus. Pull back diversion when production weakens. Expand grain and other sustainable feedstocks so that the programme becomes progressively less dependent on sugar.
The current sugar spike may not have been caused by ethanol. But it is a timely reminder that a successful biofuel policy must ultimately balance 3 interests at once: the farmer, the fuel tank and the family kitchen.
