India’s sugar shortage was foreseeable, but delayed policy action, a 100% import duty and restrictions on market mechanisms have worsened the crisis, according to agricultural economist Ashok Gulati.
With sugar production falling below expectations and imports arriving late, the debate over diverting sugarcane to ethanol has intensified. In this episode of AI with Sanket, The Federal spoke to Dr Ashok Gulati, Distinguished Professor at the Indian Council for Research on International Economic Relations (ICRIER), about the sugar crisis, ethanol diversion and the government’s policy response.
Edited excerpts:
Would it be wrong to say you had an “I told you so” moment after your earlier warning about ethanol and food security?
The sugar year is October to September. In 2024-25, production was down, but we had good stocks at that time, so the problem did not appear as much. Production was down, but when 2025-26 opened, the stocks were very low.
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As per the latest estimates, because of the deficiency of rains in June and all that, the productivity of sugarcane is low and sugar production in the country is roughly less than 30 million tonnes. Estimates vary depending upon whom you talk to, but it is very clear that you are down by at least 3-4 million tonnes of sugar.
The problem is that we could read about it in May and June — that production was likely to be lower — but how much lower, we were not sure. And that is the time when the guesswork starts.
Our import duty is touching a sky-high 100%. So, when there is a domestic shortfall and imports are not allowed in time, and suddenly you wake up at the 11th hour, you are at the fag end of the year — October to September. So, August and September, when the stocks are totally exhausted and imports have not come in time, that is the perfect storm in a way.
I would blame the government for keeping the duty 100% high. No imports could take place at that. Future markets are not allowed to function and therefore markets are imperfect.
The government says ethanol policy is not driving the sugar shortage. How do you assess that claim?
Nine per cent can be challenged. There is a very nice article by Harish Damodaran in The Indian Express.
He says from last November to this July, almost 32% of the ethanol that was produced came from sugarcane, not 10% or 9%. So, you can cross-check these numbers.
The stocks were already low. Opening stocks were at a very low level. Normally, it used to be 8 million tonnes and it was only 5 million tonnes this year.
And that’s where the importance of the futures market is. The traders keep on guessing continuously what the exact level of production is going to be. It is guesswork, but hundreds and thousands of traders would be trading on that platform.
Now, if you don’t allow that platform to function and if you keep import duties at 100%, then where is the chance of correction and filling up the gap that the production has led to?
Production was down this year. Production was down last year. So, you should know well in advance. A year back, you should have reduced the duty from 100% to 10%.
Markets have their own logic of working and they can self-correct if you allow the markets to function. But the sugar industry is heavily controlled, from the sugarcane price to sugar price to everything is controlled by the government.
Could the government have woken up last year and taken corrective steps?
I think we were reasonably sure in April-May of this year that there was going to be a shortage. Now, how much shortage? Whether it would be from 34 million tonnes to 30 million tonnes or even less. Today, the talk is that even it is less than 30.
So, the well-known fact was that there was going to be a shortage. But in this country, we have this stigma that allowing imports of any commodity is against the national interest.
And we knew that this year there was going to be a shortage of sugar because of the drop in production. Either we should have drastically allowed imports to come in — that was one option. Or switched on the gears that instead of 20% ethanol, we can reduce it to 15% ethanol. What is the problem?
Did the rush to push the 20% ethanol policy contribute to the crisis?
Had it been market-oriented like it was earlier, this problem — especially when you know and you said that all the signs were there that there would be a crisis in sugarcane — could have been avoided through adjustment.
So, the wiser policy, which the Chief Economic Adviser himself has stated and we had been talking about in the last episode, is that 10% is the number in a number of countries and that’s not a problem.
In Brazil, they have separate gas stations, whether you want 20% or even more than 20%, it’s your choice and the price differential is there.
But the larger blame is on the production decline of sugarcane and therefore sugar, and therefore the pressure on sugar prices. It is a very, very controlled sector, commodity sector — most controlled, perhaps.
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Therefore, I would say it’s a miscalculation, misjudgement on the part of the government about how much production decline is likely to be.
If only 9% of ethanol comes from sugarcane, how quickly can the government divert even that sugarcane back to sugar production during a crisis?
You say 9% or 10%, but when your production is down and literally hitting the consumption level of sugar or even below that, and when your stocks are at a record low of the last 10 years, then even 10% diversion would lead to a 30%, 40% increase in price.
And demand for sugar, especially in the festive season, is going to be very inelastic. So, given the inelastic nature of demand, a shortage of 10% of sugar is going to mean a 30%, 40% increase in price. And that’s what has happened.
So, this is the problem when a government controls a sector at every step.
Sugarcane is a classic example, all the way up to ethanol — from sugarcane pricing to sugar pricing to every fortnight how much the mills can release in the market.
It is all dictated. We are living in Soviet Russia before 1990 in the sugar sector.