Mumbai, Oct 22 — A recent central government policy decision to maintain adequate sugar production in the country has dealt a severe blow to sugar factories and standalone ethanol units in Maharashtra.
Under new guidelines issued on October 16, Oil Marketing Companies (OMCs) announced details of ethanol procurement for the upcoming ethanol supply year (November 1 to October 31). However, the policy completely bans the purchase of ethanol produced directly from sugarcane juice, sugar syrup, and B-heavy molasses.
Out of the targeted 1,100 crore liters of ethanol procurement, sugarcane sources have been excluded. The government will now only procure ethanol manufactured using C-heavy molasses. However, industry stakeholders report that producing ethanol exclusively from C-heavy molasses is financially unviable compared to current market selling prices.
The sugar industry sources claimed the restrictions have put investments worth nearly Rs 40,000 crore in the ethanol manufacturing sector at severe risk.
Across the country, sugar mills and distilleries expanded their production capacity following government incentives to achieve a 20 per cent ethanol blending target in petrol to reduce foreign fuel imports.
"India’s total installed ethanol manufacturing capacity stands at approximately 2,000 crore liters, of which 848 crore liters capacity belongs to grain-based plants. Across the country, investments in the ethanol sector total nearly Rs 1 lakh crore. Maharashtra houses 16 standalone and grain-based distilleries with a combined annual ethanol production capacity of approximately 56 crore liters," a chairman of a leading sugar cooperative factory from Maharashtra said.
He further said establishing a grain-based distillery with a daily capacity of 60 kiloliters costs between Rs 120 crore and Rs 135 crore, while a smaller 30 kiloliter plant requires Rs 50 crore to Rs 60 crore in capital investment.
The Maharashtra State Cooperative Sugar Factories Federation Ltd data shows that sugar factories have an installed ethanol production capacity of around 3,750 million litres. During the 2025-26 season, they supplied 1,250 million litres, utilising around 30 per cent of their installed capacity.
The high-level ministers' committee chaired by Chief Minister Devendra Fadnavis estimated that Maharashtra during the 2026-27 sugar season is expected to have around 99 million tonnes of sugarcane available for crushing. Sugar production was projected at 9.6 million tonnes after diverting 1.5 million tonnes of sugar towards ethanol production.
Industry representatives have voiced deep anxiety over the policy shift, citing major financial impacts on banks, sugar mills, and farmers.
The National Federation of Cooperative Sugar Factories Chairman and former Maharashtra Cooperation minister Harshvardhan Patil said, "Due to the Central Government's encouragement, sugar factories expanded distilleries and built ethanol projects, attracting Rs 1 lakh crore in investments nationwide. Ethanol blending has saved Rs 2 lakh crore in foreign exchange and provided Rs 1.75 lakh crore to farmers. Now, this ethanol-driven economy risks collapsing, potentially leading to non-performing assets (NPAs) for banks to the tune of Rs 1 lakh crore. What is to become of these established projects?"
Further, President of a Sugar Mills Association, B.B. Thombare, noted, "Union Minister Nitin Gadkari worked continuously for 25 years to build an ethanol-based economy. The Central Government's decision will ruin this economy and destroy an industry that saved critical foreign exchange. Droughts and sugar shortages are temporary phenomena, and the government needed to adopt a supportive, nurturing policy for the long-term benefit of the country's ethanol sector."
With strict procurement bans in place, newly set-up ethanol processing units and sugar mills from Maharashtra and the rest of the country face an existential crisis, struggling to cover interest and principal repayments on their heavy capital investments.
Cooperative mills are seeking government support to upgrade their distilleries into multi-feed operations (using maize and other grains) to ensure year-round production.