India is overhauling its six-decade-old rules for the sugar sector, proposing stiff 15% interest penalties on factories that fail to pay farmers within two weeks and bringing the growing ethanol sector under the government’s purview.
In a significant move, the Ministry of Consumer Affairs, Food and Public Distribution, in the draft Sugarcane (Control) Regulations, has directed that sugar mills must pay farmers within 14 days of delivery of cane. In case of default, the mills will be required to pay 15% interest per annum to the farmers. The move is seen as friendly to farmers and aims to end delays in payments.
The order also strengthens enforcement mechanisms, enabling levies to be collected as arrears of land revenue through local authorities.
Key things
- Mandatory 14-day payment window for farmers with 15% annual interest.
- Unpaid fees can be recovered as land revenue through local authorities.
- Ethanol production is officially integrated into the regulatory and pricing frameworks of the sugar industry.
- Traditional khandsari units now require a compulsory license and have to pay fixed prices.
- Digital reporting via API was introduced to modernize industry data and monitor compliance.
The Mint announced on November 10 that the government is reviewing a law to modernize and simplify outdated regulations governing the world’s second largest sugar producer.
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The Ministry of Consumer Affairs released the proposal on April 20 and invited comments from states, industry bodies and other stakeholders by May 20. In a government order dated 20 April 2026, the Department of Food and Public Distribution (DFPD) stated that “technological advances in the sugar sector” and structural changes in the sector required a revision of the existing Sugarcane (Control) Regulation 1966.
One of the key changes in the proposal is the broader definition of “producer”, which now includes entities using sugarcane juice, sugar or molasses to produce downstream products that are not intended for direct consumption. The proposal also formally introduces ethanol produced from sugar cane juice, syrup or molasses into the regulatory framework.
It defines “by-products” such as bagasse, molasses and pressed mud, reflecting their growing economic importance. The order also expands the concept of “food business” and “food business operator” in line with existing food safety regulations.
The power of ethanol
In addition, the draft lays down detailed specifications for khandsari or unrefined sugar, including quality parameters such as sucrose content and permissible impurities.
The proposal maintains a fair and remunerative price (FRP) system for sugarcane, which is set by the government based on factors such as production costs, returns from alternative crops, sugar utilization rate and by-product value.
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A notable provision links ethanol production directly to sugar production for pricing purposes. The proposal stipulates that 600 liters of ethanol produced from sugarcane-based feedstock will be considered equivalent to one tonne of sugar for purposes of determining the conversion rate.
This reflects a growing political focus on ethanol blending and the diversification of sugar mills into biofuels.
The government retains powers to regulate the distribution and supply of sugarcane through ‘reserved areas’ for mills, thereby ensuring adequate availability of sugarcane. It can also mandate agreements between farmers, cooperatives and mills for supply.
The proposal continues to restrict the establishment of new sugar mills within 25 km of existing ones, although states can prescribe greater distances with prior approval. It also lays down detailed procedures for setting up new plants, including mandatory filing of an Industrial Entrepreneur’s Memorandum (IEM) and submission of performance bank guarantees.
Provisions for digital reporting
The proposed ordinance introduces digital reporting provisions that allow the government to search for data through application programming interfaces (APIs) or other electronic modes. It also gives authorities powers of inspection, search and seizure to ensure compliance.
Licensing provisions for crushers and khandsari units remain, along with regulatory oversight of the production, storage and distribution of sugar and related products.
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According to experts, the draft also seeks to regulate khandsari units by making licensing mandatory for them and also subjecting them to regular checks and inspections.
An agriculture expert said the proposed overhaul could mean a structural shift in the sugar economy. “Timely recovery of payments and integration of ethanol into the price framework are positive steps that strengthen the financial stability of farmers,” Binod Anand, an agriculture expert and member of the government’s SME committee.
