India has directed oil marketing companies (OMCs) to set sugar diversion for ethanol production at zero for the 2026–27 ethanol supply year, excluding ethanol made from sugarcane juice, sugar, sugar syrup and B-heavy molasses from the latest procurement tender. Issued on October 16, 2026, the tender invites bids for approximately 11 billion litres of ethanol for the supply year beginning in November. The decision comes as concerns over domestic sugar availability intensify amid lower production expectations and elevated prices.
The move changes the feedstocks eligible for procurement rather than ending India’s ethanol-blending programme. Suppliers can continue bidding for ethanol produced from maize, broken rice, surplus rice procured by the Food Corporation of India and C-heavy molasses, among other permitted feedstocks. The government is attempting to balance two priorities: maintaining progress toward blending ethanol with petrol to reduce oil imports and protecting sugar supplies for domestic consumption. The decision also changes the commercial outlook for sugar mills and grain-based ethanol producers.
Key Takeaways
- Zero sugar diversion: Ethanol made from sugarcane juice, sugar, sugar syrup and B-heavy molasses is excluded from the 2026–27 tender.
- Procurement target: Oil marketing companies have invited bids for approximately 11 billion litres of ethanol.
- Grain-based ethanol remains eligible: Maize, broken rice and surplus rice procured by the Food Corporation of India can be used.
- C-heavy molasses remains permitted: The policy does not exclude every form of sugar-industry-based ethanol.
- Pricing changes: The incentive for maize-based ethanol has been reduced, lowering its procurement price under the tender.
- Policy trade-off: India must balance domestic sugar availability with ethanol blending and its goal of reducing petroleum imports.
- Important distinction: The government has identified several factors behind higher sugar prices, including production and weather conditions; it has cautioned against attributing the increase solely to ethanol diversion.
What Has the Government Changed?
The latest tender issued jointly by Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation removes several sugar-based feedstocks from the eligible procurement categories.
Under the new directions, oil marketing companies will not seek offers for ethanol produced from sugarcane juice, sugar, sugar syrup or B-heavy molasses for the 2026–27 supply year. This effectively sets sugar diversion for ethanol at zero within the scope of the tender.
However, the change does not mean that all ethanol derived from the sugar industry is prohibited. C-heavy molasses remains an eligible feedstock, alongside grain-based alternatives. The distinction matters because different molasses streams contain different amounts of recoverable sugar and have different implications for the quantity of sugar that can be produced for human consumption.
| Feedstock | Status under the 2026–27 tender |
|---|---|
| Sugarcane juice | Excluded |
| Sugar and sugar syrup | Excluded |
| B-heavy molasses | Excluded |
| C-heavy molasses | Eligible |
| Maize | Eligible |
| Broken rice | Eligible |
| Surplus rice procured by FCI | Eligible |
The tender covers approximately 11 billion litres of ethanol, with procurement quantities and prices determined under the applicable tender conditions. The actual amount delivered will depend on bids, allocations, production capacity and fulfilment by suppliers.
Why Is India Restricting Sugar Diversion?
India is the world’s largest sugar consumer, and the government is trying to maintain adequate domestic availability while managing rising prices.
Sugar production is affected by weather, crop conditions, sugarcane yields and the amount of cane available for crushing. Concerns about rainfall and crop damage in important producing states, including Maharashtra and Karnataka, have raised questions about supplies for the new season.
When production is lower than expected, policymakers face pressure to ensure that enough sugar remains available for households and food-processing businesses. Restricting the use of sugar-rich feedstocks for ethanol can help preserve more sugar for the domestic market.
However, the relationship between ethanol production and sugar prices is not straightforward. In an August 2026 statement, the government said that rising prices reflected several factors, including lower-than-expected output, weather-related crop damage, higher seasonal demand, tightening global supplies and speculation or hoarding. It also argued that the recent price rise should not be attributed solely to ethanol diversion.
The new tender is therefore best understood as a precautionary supply-management measure within a broader set of actions intended to improve sugar availability, rather than proof that ethanol production alone caused the price increase.
How the Change Affects India’s Ethanol-Blending Programme
Ethanol blending involves mixing ethanol with petrol to reduce the amount of conventional petroleum fuel consumed. India has expanded the programme as part of its efforts to reduce crude oil imports, diversify transport fuels and support domestic agricultural supply chains.
The government made E20—the blending of up to 20% ethanol with petrol—the nationwide standard earlier in 2026. The programme has increased demand for ethanol and encouraged investment in production capacity.
Sugar-based ethanol has been one source of supply, but grain-based production has also grown. According to the All India Distillers’ Association, grain-based feedstocks accounted for more than 71% of ethanol receipts by the end of September in the 2025–26 supply year.
The latest tender continues to seek a substantial quantity of ethanol, suggesting that the government intends to maintain procurement while changing the permitted feedstock mix.
The challenge is that a shift in feedstocks may create different supply, cost and capacity requirements. Ethanol producers that rely heavily on sugarcane juice or B-heavy molasses will need to assess whether they can redirect production toward permitted alternatives, while grain-based producers may face greater demand for their output.
The extent to which the revised mix meets the country’s blending needs will depend on available capacity, feedstock prices, logistics and the ability of suppliers to deliver contracted volumes on time.
Why Maize and Rice-Based Ethanol Matter
Grain-based ethanol is becoming increasingly important in India’s fuel supply chain. Maize, broken rice and surplus rice can be processed into ethanol, allowing the country to draw on agricultural feedstocks beyond sugarcane.
The shift creates opportunities for distilleries that already have grain-processing capacity or can adapt their facilities. It may also influence demand for maize and rice, depending on the quantities allocated to ethanol production.
But grain-based ethanol has its own economic considerations. Producers must account for grain procurement prices, processing costs, water and energy use, transport and plant efficiency. A change in tender rules does not automatically guarantee that grain-based production will expand by the same amount as the sugar-based supply removed from eligibility.
The policy also distinguishes between surplus food grains and grains that may be needed for food consumption. The use of surplus rice procured by the Food Corporation of India provides one route to ethanol production without treating all rice stocks as available for fuel.
For producers, the commercial outcome will depend on the prices offered by oil marketing companies and the relative economics of each feedstock.
Maize-Based Ethanol Procurement Prices Have Also Changed
Alongside the feedstock restrictions, the tender reduces the incentive for maize-based ethanol from ₹5.79 per litre to ₹2.79 per litre.
As a result, the procurement price for maize-based ethanol falls from ₹71.86 per litre to ₹68.86 per litre under the reported tender terms.
| Maize-based ethanol pricing | Earlier rate | New rate |
|---|---|---|
| Procurement price | ₹71.86 per litre | ₹68.86 per litre |
| Incentive | ₹5.79 per litre | ₹2.79 per litre |
| Change in procurement price | — | Down ₹3 per litre |
The reduction matters because producers assess whether the price they receive covers feedstock costs, conversion expenses and the investment required to operate distilleries. A lower procurement price may limit the benefit of greater demand for maize-based ethanol, particularly if maize prices or other production expenses rise.
The effect will differ across plants. Facilities with efficient operations, favourable grain procurement arrangements and sufficient capacity may be better placed to remain competitive than those with higher input costs.
The price revision illustrates that the government’s approach is not simply to replace sugar-based ethanol with grain-based ethanol at any cost. It is also adjusting procurement economics as it changes the feedstock mix.
What Does the Decision Mean for Sugar Mills?
Sugar mills have used ethanol production as a way to diversify revenue and manage the seasonal nature of sugar manufacturing. Diverting some sugarcane output into ethanol can provide an alternative outlet for the crop and support cash flow.
The exclusion of sugarcane juice and B-heavy molasses from the tender removes important routes for monetising sugar-rich feedstocks during the upcoming supply year. Mills that invested in production systems designed around those feedstocks may need to reconsider their operating plans.
C-heavy molasses remains eligible, but it cannot necessarily replace all the ethanol previously produced from sugarcane juice or B-heavy molasses. The output available from each feedstock depends on processing characteristics and the amount of material generated during sugar manufacturing.
Some mills may shift toward C-heavy molasses-based production where commercially viable. Others may need to assess alternative arrangements, including grain-based production, depending on their plant configuration and available capital.
The effect on sugar mills will also depend on domestic sugar prices and the volume of cane available for crushing. Higher sugar prices can improve the value of sugar sold into the market, but reduced ethanol opportunities may affect the revenue mix of mills that relied on sugar-based diversion.
Could the Policy Help Stabilise Sugar Prices?
The immediate aim is to preserve domestic sugar availability by preventing specified sugar-rich feedstocks from being diverted into ethanol under the new tender.
Whether that leads to lower retail prices will depend on several factors. These include actual sugar production, opening stocks, the pace of crushing, demand from households and food manufacturers, imports and enforcement against hoarding or speculative stockholding.
The government has already announced other measures to improve availability, including stock limits and permission for duty-free imports of raw sugar. It has also said it is monitoring inventories and market practices.
The tender change should therefore be seen as one part of a broader supply-management effort. It does not guarantee that prices will fall immediately, particularly if production remains below expectations or demand continues to be strong.
For consumers, the relevant outcome will be whether the combined measures improve the availability of sugar in the domestic market and moderate price pressure over the coming months.
The Bigger Picture
India’s zero sugar-diversion decision highlights the competing demands placed on agricultural commodities. Sugarcane can supply both food markets and fuel production, but when domestic supplies tighten, the government must decide how to balance those uses. The latest tender prioritises sugar availability for the 2026–27 supply year while keeping the ethanol programme active through grain-based feedstocks and C-heavy molasses.
The shift also demonstrates that ethanol policy is closely linked to agriculture, energy security and industrial investment. Sugar mills and distilleries will need to adjust their plans, while grain-based producers face a changing procurement environment. The long-term outcome will depend on whether the revised feedstock mix can support blending targets without creating new pressures on grain markets, production costs or domestic food supplies.
Looking Ahead
The next stage will be the allocation of procurement quantities and the ability of suppliers to meet the oil marketing companies’ demand for approximately 11 billion litres of ethanol. Producers will watch the tender results, feedstock availability and actual procurement prices to determine how much production can be shifted toward eligible sources. Sugar mills will also assess the effect of the new restrictions on their revenue and operating plans.
The broader test is whether India can maintain its ethanol-blending objectives while protecting domestic sugar availability. The zero-diversion rule changes the balance for the coming supply year, but it does not settle the longer-term question of how much ethanol should come from sugarcane, maize, rice or other permitted feedstocks. Future decisions will depend on crop output, sugar prices, fuel demand and the economics of competing production routes.
Frequently Asked Questions
1. What does zero sugar diversion for ethanol mean?
It means the 2026–27 tender excludes ethanol made from sugarcane juice, sugar, sugar syrup and B-heavy molasses. C-heavy molasses remains eligible.
2. Is India stopping ethanol production?
No. Oil marketing companies have invited bids for approximately 11 billion litres of ethanol. The change restricts specified feedstocks rather than ending ethanol procurement or the blending programme.
3. Why has the government made this decision?
The government is seeking to protect domestic sugar availability amid concerns about production and high prices while continuing its ethanol-blending programme.
4. Which feedstocks can still be used for ethanol?
Eligible sources include maize, broken rice, surplus rice procured by the Food Corporation of India and C-heavy molasses, subject to tender conditions.
5. How will the decision affect sugar mills?
Mills that rely on sugarcane juice or B-heavy molasses for ethanol may need to adjust production plans. The effect will depend on their facilities, sugar prices and the availability of alternative feedstocks.
6. Will sugar prices fall because of the restriction?
Not necessarily. Prices will depend on production, stocks, demand, imports, weather conditions and market practices. The government has identified several factors behind the recent rise in prices, not ethanol di
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