The Union government is finalizing a comprehensive overhaul of sugar sector regulations, expanding the framework to include ethanol production, devolving more powers to states, and reviewing long-standing rules governing mill operations in the world’s second-largest sugar producer.
The Food Ministry’s draft Sugarcane (Control) Order 2026 proposes to increase the mandatory distance between two mills, known as the driving zone, from 15 km to 25 km. The rule aims to prevent mills from sourcing sugarcane outside designated areas and competing for farmers’ products.
While Maharashtra, Punjab and Haryana already follow the 25 km standard, major producers like Uttar Pradesh and Karnataka do not currently do so. This change was a long-term industrial demand, reflecting shifts in cropping patterns.
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The project also places ethanol production within the regulatory scope of the sector. The ethanol production units from molasses, a by-product of sugar, will be treated as part of the sugar industry. India has significantly expanded ethanol production under the E20 blending programme, which involves mixing the alcohol compound with gasoline, and the current capacity is about 20 billion liters annually. Under the proposed framework, 600 liters of ethanol would be treated as equivalent to one tonne of sugar to calculate the sector’s total production.
Industry representatives have broadly welcomed the changes. “We are still considering the changes but on a larger scale, steps like changing the distance between mills and bringing khandsari units under the regulatory framework are welcome steps,” said Deepak Palani, director general, Indian Sugar and Bioenergy Manufacturers Association (ISMA). Khandsari units are small informal manufacturers of raw unrefined sugar.
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Mill owners must pay farmers a fixed federally guaranteed price, known as the fair and remunerative price, currently set $355 quintals (100 kilos). The new framework does not propose any change in this pricing system, which provides lucrative profits to about 50 million sugarcane farmers in the country.
Under the proposed changes, states would be empowered to make certain decisions, such as approving capacity additions, that currently require federal approvals. The draft also retains provisions such as a 14-day payment deadline and 15% interest payable to farmers for late payments.
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The reforms represent the most significant reset since 2012, when the United Progressive Alliance government abolished the sugar tax system based on the recommendations of economist C Rangarajan. Levy Sugar referred to the mandatory quantity of their products that mills had to sell to the government at a reduced price for the public distribution system.
The draft also proposes new procedures for approving factories and enforcing distance rules between mills, in addition to raising bank guarantees for performance $2 crore, all of which will be under the supervision of an independent monitor. The draft reflects the new search and seizure provisions under the Bharatiya Nagarik Suraksha Sanhita Act, 2023, the legislation governing the country’s criminal justice system.
