India, the world’s second-largest sugar producer, has opened a 1 million-tonne duty-free import window for raw sugar as domestic prices reach record levels, bringing overseas supplies back into the market for the first time in nearly a decade.
21 August 2026, New Delhi: India has taken a sharp turn in sugar policy, allowing up to 1 million tonnes of raw sugar to be imported at zero duty until October 31, 2026, as domestic prices surge ahead of the country’s peak festive season.
The decision comes after sugar prices rose nearly 40% in two months, according to sources, as tightening supplies collide with higher demand during the August-November festival period. The move is particularly significant for India, the world’s second-largest sugar producer and largest consumer, where government policy has traditionally sought to balance domestic availability with the interests of farmers, mills, exporters and the rapidly expanding ethanol industry.
The government’s decision effectively reverses an import policy that has been in place for years. India normally imposes a 100% import duty on sugar, making overseas supplies largely uncompetitive in the domestic market. The new tariff-rate quota allows selected mills and refiners to bring in raw sugar without the duty and sell the refined product domestically.
Ethanol diversion adds pressure to sugar supplies
The current squeeze is closely linked to the changing economics of India’s sugarcane sector. India’s net sugar production as of 30th March 2026 was about 27.27 million tons, a year-on-year decrease of 14.7%.
Over the past few years, the government has encouraged sugar mills to divert sugarcane and sugar-based feedstocks towards ethanol as part of its petrol-blending programme. India had targeted 20% ethanol blending in petrol for Ethanol Supply Year 2025-26, and the Department of Food and Public Distribution has explicitly encouraged mills to divert excess sugarcane towards ethanol.
That policy has created a new competing demand for sugarcane. Cane that might otherwise have produced sugar can instead be processed into ethanol, reducing the quantity of sugar entering the food market.
Government data show that sugar diversion towards ethanol has already been substantial. 3.4 million tonnes of sugar was diverted to ethanol in the 2024-25 sugar season, following 2.4 million tonnes in 2023-24 and 4.3 million tonnes in 2022-23. For the current season, industry estimates indicate that around 2.4 million tonnes of sugar equivalent has been diverted towards ethanol.
The government has recognised the need to balance the two markets. A September 2025 order allowed sugar mills and distilleries to produce ethanol from sugarcane juice, sugar syrup and molasses during ESY 2025-26 without restriction, while directing the Department of Food and Public Distribution to periodically review ethanol diversion against domestic sugar production to ensure adequate availability.
The issue has now moved from being a longer-term policy consideration to a direct market concern. Earlier this month, the Indian government was considering restrictions on the amount of sugarcane that could be diverted to ethanol in the next season to increase sugar production and ease prices. Concerns over rainfall and crop conditions in Maharashtra and Karnataka have added to uncertainty over the next crop.
Festival demand arrives at a difficult time
The timing of the price surge is critical. India’s sugar consumption typically increases between August and November as festivals drive demand for sweets, confectionery and processed foods. This year, the seasonal increase in demand is arriving when mill inventories are already under pressure.
Wholesale prices in Maharashtra, India’s largest sugar-producing state, have moved sharply higher. Benchmark ex-mill prices have reached around ₹5,400-5,560 per quintal, according to industry reports, while sugar prices in key markets have touched record levels.
Indian sugar prices had risen almost 40% over two months by August 20, prompting the government to intervene before the peak festival demand period.
The government, however, has not characterised the situation simply as a physical shortage. Earlier in July, it said the rise in ex-mill prices was not supported by prevailing demand-supply fundamentals and pointed to hoarding, speculative transactions and paper trading as factors contributing to the perception of scarcity.
From exports to imports in less than a year
The import decision also exposes a striking shift in India’s sugar balance. At the beginning of the 2025-26 season, the government permitted sugar exports, initially allocating 1.5 million tonnes and subsequently increasing the permitted quantity. The government continued to manage export quotas during the season, with additional allocations recorded by the Department of Food and Public Distribution.
Now, less than a year later, India is opening its doors to imports. Around 1 million tonnes of raw sugar can enter the country under the new duty-free quota, with imports permitted until October 31. Mills and refiners with in-house refining capacity are eligible, and applications for the quota are being accepted during August 21-28.
The move is not expected to immediately deliver the full 1 million tonnes to consumers. Imported raw sugar must first reach Indian ports and be refined before it can enter the domestic market.
Government tightens stock controls
The import decision is part of a broader attempt to bring prices under control. In July, the government imposed stockholding limits on sugar dealers from August 1 through November 30. Dealers must declare their inventories and update stock positions weekly. The government said the measure was intended to curb hoarding and speculative trading and ensure continuous availability of sugar at reasonable prices.
A second measure targets bulk consumers. From September 1 to November 30, bulk users consuming more than 10 tonnes of sugar a month will be restricted to holding 15 days of inventory. The measure covers industries and institutional users such as confectionery and food processors and is designed to prevent large consumers from building inventories during the period of tight supply and rising prices.
The combination of imports and inventory controls shows that the government is trying to address both sides of the market: increase physical availability while discouraging stock accumulation.
A delicate balance between sugar and ethanol
The immediate price issue has brought a larger policy question into focus.
India’s ethanol programme has become an important component of the country’s energy strategy. For sugar mills, ethanol provides an alternative revenue stream and helps reduce dependence on sugar prices. For the government, it supports the transition towards higher ethanol blending in petrol.
But every tonne of sugarcane diverted towards ethanol represents cane that is not being converted into sugar.
This trade-off becomes particularly important when sugar production is lower than expected. Weather conditions in key producing states can reduce cane availability at the same time that the government is trying to maintain ethanol supplies and meet blending targets.
The result is a more complex sugar balance than India faced when its policy was primarily focused on managing recurring sugar surpluses.
The government’s September 2025 ethanol order itself acknowledges this balancing act by requiring periodic review of sugar diversion to ethanol against domestic sugar production so that sugar remains available throughout the year.
What happens next?
The immediate objective of the import window is to prevent the price rally from intensifying during the festival season.
The bigger test will come with the start of the 2026-27 sugar season. Policymakers will have to determine how much cane should be available for sugar production and how much can be diverted towards ethanol while maintaining sufficient domestic stocks.
The government may also need to reconsider how export decisions are timed against production estimates, opening stocks, ethanol diversion and expected consumption. The events of the current season show how quickly India can move from managing exports to facilitating imports when the domestic balance changes.
For global sugar markets, the shift matters because India is both a major producer and the world’s largest consumer. Even a temporary return to imports can alter international trade flows and provide additional support to global sugar prices. Indian import expectations have already pushed London and New York sugar futures higher.
For India’s sugar industry, meanwhile, the episode highlights a new structural challenge: the same sugarcane crop is increasingly being asked to serve two strategic markets, food and fuel.
The 1 million-tonne import window may provide a short-term bridge through the festive season. But the longer-term question is whether India can expand ethanol without creating periodic pressure on domestic sugar supplies, particularly when weather reduces cane production.
That balance between sugar for food and cane for ethanol is likely to become one of the most important policy questions for India’s sugar industry in the seasons ahead.
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