India’s government has set sugar diversion for ethanol production at zero for the 2026-27 supply season, barring sugarcane juice, syrup and B-heavy molasses from the country’s ethanol-blending programme, according to Business Today, which reported the decision around 17 October 2026. Autocar India, UNI India and Swarajya each corroborated the same tender decision in their own coverage.
The move reverses years of policy that encouraged sugar mills to divert a growing share of cane output toward ethanol production, part of India’s broader push to blend more ethanol into petrol and cut fuel-import costs. Officials cited record retail sugar prices as the reason for the reversal, aiming to rebuild depleted buffer stocks ahead of the festive season that runs through Diwali and into the new year, when household sugar demand typically peaks.
Under the new tender terms, ethanol producers will source feedstock mainly from maize and grain rather than sugarcane by-products for the coming season, a shift that redirects demand toward India’s grain-ethanol capacity built up in recent years specifically to reduce pressure on sugar supplies during periods of tight stock.
A reversal with precedent
India has adjusted its sugar-ethanol diversion policy several times over the past decade, tightening or loosening the share of cane allowed into ethanol production depending on domestic sugar stock levels and global price trends. The zero-diversion stance for 2026-27 is among the more restrictive settings in recent years, reflecting the government’s priority on stabilising retail prices over expanding ethanol blending in the near term, even though ethanol policy has otherwise been a consistent priority across recent budgets.
Sugar mills that had invested in distillery capacity built around cane-derived ethanol may need to adjust sourcing plans for the season, shifting toward grain feedstock or scaling back ethanol output if maize supplies are insufficient. Neither Business Today nor the corroborating outlets detailed how mills are expected to manage that transition, or whether compensation or transition support is planned.
Festive-season timing matters
The decision arrives ahead of India’s peak sugar-demand period, when confectionery, sweets and festive cooking drive a seasonal spike in household purchases. Retail sugar prices have featured among the contributors to elevated food inflation reported in India through much of 2026, making the ethanol-diversion reversal one of several levers the government has pulled this year to manage consumer food costs.
Whether the policy succeeds in bringing retail sugar prices down meaningfully will depend on this season’s cane harvest and how quickly rebuilt buffer stocks reach the market. The government has not set a public target date for sugar prices to stabilise, nor indicated how long the zero-diversion policy will remain in place beyond the current 2026-27 season.
