The government on Friday rejected suggestions that the recent rise in sugar prices was linked to the diversion of sugar for ethanol production, attributing the increase instead to lower domestic output, rising festive-season demand, tighter global supplies and hoarding.

In a statement, the Ministry of Consumer Affairs, Food & Public Distribution said the government had taken several steps to improve availability and check prices, including imposing stock limits on traders and approving duty-free imports of raw sugar.

“It is incorrect to attribute the recent increase in sugar prices to the diversion of sugar for ethanol production,” the ministry said.

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According to the government, the proportion of sugar used for ethanol production has declined to around 9% in the 2025-26 season from about 12% in 2022-23. It added that nearly three-fourths of India’s ethanol production now comes from grains, particularly maize.

Sugar prices rise amid lower production, festive demand

Retail sugar prices rose to Rs 55.70 per kg on August 20, up from Rs 48.18 per kg a month earlier, on July 20.

The government attributed the increase to lower-than-expected domestic sugar production, higher demand ahead of the festive season, crop damage caused by weather and disease, tightening supplies in the global market, and speculation and hoarding by some sections of the industry.

To contain prices, the government has imposed a nationwide stock limit of 400 tonnes on sugar dealers until November 30.

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From September 1, bulk consumers will also not be allowed to hold sugar stocks exceeding 15 days of their consumption requirements.

The government has additionally approved duty-free imports of 1 million tonnes of raw sugar and ordered joint teams of central and state government officials to physically verify stocks held by sugar mills to check hoarding and artificial shortages.

Sugar output falls below initial estimates

The ministry said domestic sugar production during the current season is now estimated at around 30.6 million tonnes, lower than the initial estimate of about 34.3 million tonnes provided by sugarcane-growing states.

The production shortfall has been attributed to Red Rot and Top Borer diseases affecting sugarcane crops, as well as waterlogging caused by excess rainfall.

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However, the government said the sugar available in the country was sufficient to meet domestic demand until the start of the next crushing season in October.

It has advised state governments and sugar mills to begin crushing operations from October 15, a move expected to significantly increase supplies during the festive period.

October sugar production is projected to exceed 1 million tonnes, compared with the usual output of around 300,000 to 400,000 tonnes during the month, according to the government.

Global sugar supplies also under pressure

The government said the rise in domestic prices was also taking place against the backdrop of tighter global supplies.

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It estimated a global sugar deficit of around 3.3 million tonnes in 2026-27. International sugar prices have risen by more than 16%, reaching USD 552 per tonne on August 20, compared with USD 474 per tonne on June 30.

The government said these developments had added to pressure on the domestic market.

Government defends ethanol programme

Defending the ethanol programme, the ministry said it had helped the sugar industry manage structural surpluses, strengthen the finances of sugar mills and improve payments to sugarcane farmers.

India typically produces between 32 million and 34 million tonnes of sugar annually, against domestic consumption of around 28 million to 29 million tonnes. In years of surplus production, large sugar inventories can block working capital for mills and contribute to delays in payments to farmers.

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The government said 97% of sugarcane dues for the 2025-26 season had been cleared as of August 20.

It also said the financial condition of the sugar industry had improved over the years, reducing its dependence on government assistance. Around Rs 14,600 crore in subsidies was provided to the sector between 2014 and 2021, but no similar subsidy has been announced since 2021-22, according to the statement.

The government said its recent interventions were aimed at ensuring adequate sugar availability and preventing further pressure on prices as demand rises during the festive season.

(With PTI inputs)