A central government directive issued on 16 October 2026 has plunged Maharashtra's sugar mills and standalone ethanol units into a severe financial crisis, banning the procurement of ethanol produced directly from sugarcane juice, sugar syrup, and B-heavy molasses for the upcoming ethanol supply year (1 November 2026 to 31 October 2027). Industry stakeholders warn that investments worth nearly ₹40,000 crore in Maharashtra's ethanol sector are now at serious risk.

What the New Policy Says

Under the revised guidelines, Oil Marketing Companies (OMCs) will procure ethanol exclusively from C-heavy molasses in the new supply year, as part of the Centre's broader effort to ensure adequate domestic sugar production. Out of a targeted 1,100 crore litres of ethanol procurement nationally, sugarcane-derived sources have been entirely excluded.

Industry representatives say that producing ethanol solely from C-heavy molasses is financially unviable at prevailing market selling prices. The policy effectively renders a large share of installed capacity — much of it built on government-backed incentives — commercially non-operational.

Scale of the Investment at Risk

According to a chairman of a leading sugar cooperative factory in Maharashtra, India's total installed ethanol manufacturing capacity stands at approximately 2,000 crore litres, of which 848 crore litres belongs to grain-based plants. Nationwide, cumulative investments in the ethanol sector total nearly ₹1 lakh crore.

Maharashtra alone houses 16 standalone and grain-based distilleries with a combined annual ethanol production capacity of approximately 56 crore litres. Data from the Maharashtra State Cooperative Sugar Factories Federation Ltd indicates that sugar factories in the state have an installed ethanol capacity of around 3,750 million litres. During the 2025–26 season, they supplied 1,250 million litres — utilising barely 30 per cent of installed capacity even before the new curbs took effect.

A high-level ministers' committee chaired by Chief Minister Devendra Fadnavis had projected that Maharashtra would have approximately 99 million tonnes of sugarcane available for crushing in the 2026–27 sugar season, with sugar production estimated at 9.6 million tonnes after diverting 1.5 million tonnes of sugar towards ethanol production.

Industry Leaders Raise the Alarm

Harshvardhan Patil, Chairman of the National Federation of Cooperative Sugar Factories and former Maharashtra Cooperation Minister, stated: 'Due to the Central Government's encouragement, sugar factories expanded distilleries and built ethanol projects, attracting ₹1 lakh crore in investments nationwide. Ethanol blending has saved ₹2 lakh crore in foreign exchange and provided ₹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 ₹1 lakh crore. What is to become of these established projects?'

B. B. Thombare, President of a Sugar Mills Association, said: '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.'

Capital Costs and the NPA Threat

The financial exposure is steep. According to industry sources, establishing a grain-based distillery with a daily capacity of 60 kiloliters costs between ₹120 crore and ₹135 crore, while a smaller 30-kiloliter plant requires between ₹50 crore and ₹60 crore in capital investment. With procurement bans now in force, newly established ethanol units are struggling to service interest and principal repayments on these loans — raising the prospect of widespread NPAs across the banking system.

This comes amid the government's own push to achieve a 20 per cent ethanol blending target in petrol — a goal that incentivised the very capacity expansion now left stranded. Critics argue the policy reversal undermines investor confidence in government-backed green energy transitions.

What the Industry Wants Next

Cooperative mills are pressing the government to support upgrades of their distilleries into multi-feed operations capable of processing maize and other grains, which would allow year-round production and reduce dependence on sugarcane availability. Stakeholders have also called on the Centre to adopt a longer-term, stable policy framework for the ethanol sector rather than making abrupt adjustments tied to seasonal sugar supply concerns. Whether the Centre revises its procurement guidelines before the supply year begins on 1 November 2026 will be closely watched by lenders, farmers, and the broader renewable energy ecosystem.