India Scraps 60-Year-Old Sugarcane Law : What is Changed
Draft ‘Sugarcane Control Order 2026’ Promises Stronger Farmer Protections, Ethanol Push and Digital Accountability
New Delhi — After tweaking the SUGAR CONTROL ORDER 1966 last year, now In a landmark policy overhaul, the Government of India’s Ministry of Consumer Affairs, Food and Public Distribution has circulated a draft Sugarcane Control Order, 2026, proposing to repeal and supersede the six-decade-old Sugarcane (Control) Order, 1966. The Office Memorandum, bearing reference No. 3(3)/2018-SP-I and issued under the signature of Under Secretary Jaivir Singh from Krishi Bhavan, New Delhi, has been sent to all stakeholders — including Secretaries of concerned Ministries, Principal Secretaries of sugarcane-producing States, the National Sugar Institute, industry bodies such as ISMA, NFCSF and AISTA, and CEOs/MDs of sugar mills across the country. All comments and suggestions on the draft have been invited by May 20, 2026.
The new Order, to be notified in the Gazette of India, will come into force on the date of its publication and will replace a law that has governed India’s sugarcane sector since 1966 — a period that saw the rise of ethanol blending programmes, cooperative sugar movements, digital governance and entirely new by-product industries that the old law simply could not anticipate.
Why Was a New Law Needed?
The 1966 Order was framed in a vastly different economic and technological environment. Since then, the sugarcane sector has transformed fundamentally. Ethanol production directly from sugarcane juice, B-Heavy molasses and sugar syrup has become a national energy and agricultural policy priority. Co-generation of power from bagasse, bio-fertilisers from press mud, API-based digital reporting and direct bank transfers have changed how mills operate. The Government acknowledged that these technological advancements necessitated a comprehensive revamp rather than piecemeal amendments to the old framework.
Key Definitions — What Has Changed?
The 2026 Order updates and expands several critical definitions to reflect the current reality of the industry:
Sugar Factory or Sugar Mill: Any premises where twenty or more workers are employed and where sugar is manufactured through the vacuum pan process, or where ethanol is produced directly from sugarcane juice, syrup, sugar or khandsari sugar syrup with the aid of mechanical power. Crucially, ethanol production facilities are now explicitly brought within the definition — a significant shift from the 1966 Order.
Khandsari Factory: Any premises with ten or more workers engaged in the production of khandsari sugar through the open pan process.
Ethanol: Defined broadly to include rectified spirit, special denatured spirit, extra neutral alcohol (ENA), absolute alcohol, anhydrous de-natured ethanol, fuel grade ethanol and any other form of ethyl alcohol produced from sugarcane juice, sugar syrup, cane molasses or sugar.
By-Products: Cane bagasse, cane molasses, press mud cake and any other alternative product affecting sugar production — all of which have significant commercial value under the new framework.
Sugar: Now expanded to include any form containing more than 90% sucrose (polarisation), including raw sugar, plantation white sugar, refined sugar, sugar candy, khandsari sugar, bura sugar, crushed sugar and any sugar in crystalline, powdered or liquid form.
Producer: Any entity or person manufacturing sugar or any product using sugarcane juice or sugar or cane molasses, where sucrose is utilised and the resultant product is not meant for direct human or animal consumption — thereby covering ethanol and industrial producers within the regulatory net.
FRP — Fourteen Days to Pay, 15% Interest on Delay, Land Revenue Recovery if Defaulted
The provisions of Clause 3 are the most consequential for India’s 50 million sugarcane farmers.
FRP Determination: The Central Government will continue to fix the Fair and Remunerative Price (FRP) of sugarcane after consultations with relevant bodies, taking into account the cost of production, returns from alternative crops, consumer price of sugar, sugar recovery rates, realisation from by-products such as molasses, bagasse and press mud, and reasonable profit margins for farmers.
A significant new Explanation clarifies that when a sugar factory produces ethanol directly from sugarcane juice, B-Heavy molasses or sugar syrup, every 600 litres of ethanol so produced shall be treated as equivalent to one tonne of sugar production for the purpose of calculating recovery-linked FRP. This removes a long-standing ambiguity that adversely affected ethanol-producing mills.
14-Day Payment Deadline — Mandatory: Every sugar producer must pay the FRP to the sugarcane grower or their cooperative society within 14 days of delivery of the cane — either at the factory gate, the cane collection centre, or by direct bank transfer to the grower’s or cooperative’s account.
15% Per Annum Interest on Delayed Payment: Where a producer fails to pay within 14 days, interest at 15% per annum will accrue on the unpaid amount for the entire period of delay beyond 14 days. Where interest is paid to a cane growers’ cooperative society, the society is mandated to pass it on to individual farmers after deducting only permissible administrative charges.
Recovery as Arrears of Land Revenue: Where any producer defaults on FRP payment — whether identified through information furnished by the mill itself, claims by growers, or an official inquiry — the Central Government or State Government may forward a certificate to the District Collector specifying the amount due, who shall then recover it as arrears of land revenue. This is a powerful enforcement mechanism that mirrors the urgency of tax recovery.
Distribution to Growers: After recovery, the Collector shall invite claims through a public notice within 30 days and distribute the recovered amount to growers in proportion to the cane supplied by each. If the recovered amount is less than the total due, recovery proceedings continue until the full amount is realised.
Three-Year Claim Window: If growers do not come forward to claim their recovered dues within three years of the public notice, the unclaimed amount is deposited in the Consolidated Fund of the State, which shall, as far as possible, use it for sugarcane development programmes.
Unclaimed FRP Deposited with Collector: In cases where cane price remains unpaid at the end of the sugar year due to suppliers not coming forward, the mill must deposit the amount with the District Collector within three months of the close of the sugar year.
Clause 3A: When Rebates Can Be Given on FRP
The Order prescribes four specific situations in which a rebate from the FRP is permissible:
Firstly, where cane is transported to the factory from a purchasing centre by the mill using its own vehicles — a transportation rebate fixed by the Central Government may be deducted. Distances of less than half a kilometre are to be ignored; half a kilometre or more counts as one kilometre.
Secondly, rebates are allowed for burnt, stale, dried or rejected cane varieties, subject to the condition that the rebate does not exceed the estimated reduction in sugar recovery from such inferior cane.
Thirdly, where cane is brought bound in bundles and weighed as such, a rebate of up to 1 kilogram per quintal of sugarcane may be allowed for the weight of binding material.
Fourthly, where cane is supplied ex-field (directly from the farm without reaching a purchasing centre), a rebate not exceeding the estimated harvesting and transportation expenditure may be permitted.
No New Sugar Factory Within 25 Kilometres of an Existing One
Clause 6A retains and reinforces the restriction that no new sugar factory shall be set up within a radius of 25 kilometres of any existing or notified new sugar factory. State Governments, with prior Central Government approval, may prescribe a higher minimum distance for specific regions, but cannot go below 25 kilometres.
For expansion of capacity of existing mills, the State Government or authorised authority must assess sugarcane availability, cultivable area, average yield, operational days and potential adverse impact on neighbouring mills before granting permission.
What Counts as an “Existing” Factory: Any factory currently in operation, or one that has taken all effective steps toward commissioning, qualifies as existing — but a factory that has not crushed cane for the last five consecutive sugar seasons is excluded from this protection.
Industrial Entrepreneur Memorandum (IEM): Detailed Procedural Framework
For anyone wishing to establish a new sugar factory, the Order lays out a step-by-step process:
Step 1: Obtain a distance certificate from the State Cane Commissioner or Director (Sugar) confirming the proposed site is beyond the minimum prescribed distance from all existing and new sugar factories.
Step 2: File IEM Part-A with the Central Government within two months of obtaining the distance certificate, failing which the certificate expires.
Step 3: Submit a Performance Bank Guarantee (PBG) of ₹2 crore to the Director (Sugar), Department of Food & Public Distribution, within 30 days of IEM Part-A acknowledgement. Note: Factories producing only ethanol without crushing cane on their own premises are exempt from this PBG requirement.
Step 4: Take all effective steps within three years — which means completing land acquisition, signing plant and machinery contracts with payment schedules, commencing civil construction, and securing term loan sanction from banks.
Step 5: Commence commercial production within five years from the date of PBG acceptance. Failure to do so results in de-recognition of the IEM and forfeiture of the PBG.
Extensions: Time extensions are available in cases of natural calamities, court-imposed stays, delays in State Government approvals or inability to arrange financing — but extensions are limited in number and attract additional bank guarantees of ₹1 crore per year beyond the standard period. A flat two-year extension was also provided for delays caused by the COVID-19 lockdown (1 March 2020 to 28 February 2022).
Clause 6CC: Strict Ban on Selling an IEM Before Production Begins — A New and Critical Provision
This is one of the most significant new insertions in the 2026 Order. No holder of an IEM may transfer, sell or assign it to any third party before commercial production commences. The only exceptions are an order from a competent court of law or financial institution, or a resolution passed by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 — in other words, only in genuine insolvency or legal compulsion situations.
The Order further clarifies that “transfer of IEM” includes sale of land, plant or machinery associated with the proposed sugar factory — closing off indirect routes for trading IEMs. Any approved transfer attracts fresh PBG obligations on the new owner, and the original PBG is forfeited.
This provision directly addresses a known malpractice where IEMs were being traded commercially as speculative assets — a practice that blocked genuine investors and distorted the spatial planning of sugar factories.
Derecognised IEMs Can Be Reinstated — But With Conditions
Clause 6F introduces a structured one-time review mechanism for reinstating a de-recognised IEM. The Director (Sugar) may reinstate the IEM on a case-by-case basis, subject to fresh PBGs, compliance with all original conditions and extended timelines — but maximum extensions are capped. If commercial production still does not commence within any extended period, all bank guarantees are forfeited and no further reinstatement is permitted.
Plant Name and Plant Code — How New Factories Will Be Formally Recognised
Clause 6G establishes a formal credentialing system for newly commissioned factories. Upon successful trial crushing and commencement of commercial production, the project proponent must submit: a Cane Commissioner’s certificate mentioning the date of production and quantities; IEM Part-B; the GST certificate; and a stamp-paper undertaking to comply with all DFPD directives and to notify any future capacity expansion or change in ownership. A provisional Plant Name and Plant Code will then be allotted.
This provisional registration is regularised into a permanent code after three consecutive months of P-II filings and GSTR-1 returns — tying formal industry recognition directly to actual, verifiable operations.
Significantly, if a registered sugar factory remains closed for seven consecutive sugar seasons, its Plant Name, Plant Code and IEM will automatically stand de-recognised — eliminating the phenomenon of zombie factories that hold registrations without functioning.
Digital Governance: API-Based Reporting Mandatory
Clause 9 mandates that all sugar factories, sugar mills, cooperative societies, khandsari factories, and dealers must furnish information, returns and reports to the Central Government through digital forms using Application Programming Interface (API) or any other specified mode. The Order explicitly states that this data shall not be shared with any third party and shall be used exclusively for government purposes — addressing industry concerns about commercial data sensitivity.
Powers of Entry, Search and Seizure
Clause 9A empowers both Central and State Governments to authorise officers to enter, search and seize accounts, books, registers and documents from sugar producers, crushers, power crushers and khandsari factories if contraventions of the Order are suspected. Importantly, the Bharatiya Nagarik Suraksha Sanhita, 2023 (the new criminal procedure code) governs how such searches and seizures are conducted — replacing the old Code of Criminal Procedure reference.
Implications for Maharashtra
Maharashtra, India’s largest sugar-producing State with over 200 active sugar factories, stands to be significantly impacted by the new Order.
FRP Discipline: As on April 15, 2026, Maharashtra still has FRP arrears of approximately ₹2,130 crore pending across 117 factories. The mandatory 14-day payment window and 15% interest on delayed payment, backed by land revenue recovery powers, could substantially reduce the endemic culture of FRP delays that has long troubled sugarcane farmers, particularly in Marathwada and Solapur.
Ethanol Economy: Maharashtra’s mills — especially in the Kolhapur, Pune and Solapur belts — have been expanding their ethanol distilleries aggressively. The new definition explicitly includes ethanol producers within the regulatory framework and the 600-litre conversion formula clarifies FRP calculations, which has been a persistent grey area for mills operating dual sugar-ethanol operations.
IEM Trading Curbed: There have been documented instances across Maharashtra of IEMs being treated as commercial instruments — bought and sold before factories were built. Clause 6CC directly addresses this problem.
Dormant Factories: Several Maharashtra factories have remained closed for years while retaining their IEMs and blocking new entrants in their designated areas. The seven-season automatic de-recognition provision will progressively clear this backlog.
25-Kilometre Rule: With sugar factory density high in western Maharashtra, the retention of the 25-km restriction will continue to shape where new factories can be set up, particularly as ethanol-only units seek to establish themselves closer to existing mills.
Industry Response
Sugar industry associations including ISMA (Indian Sugar Mills Association), NFCSF and AISTA are expected to closely scrutinise provisions related to the ethanol conversion formula, the 15% interest rate — which they may argue is too high in a low-margin industry — and the timelines for IEM implementation. Farmer organisations have broadly welcomed the stronger FRP enforcement mechanism. Consumer affairs experts have noted that the explicit linkage between FRP and consumer sugar prices in the determination criteria is a positive step toward balancing all stakeholder interests.
Legal experts point out that grounding the new Order in the Essential Commodities Act, 1955, ensures robust constitutional backing for its price-fixation and enforcement provisions.
The Sugarcane Control Order 2026 represents the most comprehensive overhaul of India’s sugarcane regulatory architecture in six decades. It seeks to balance the interests of 50 million farmers, over 500 sugar factories, the national ethanol blending programme, consumer affordability and the integrity of new investment. The shift toward mandatory digital reporting, strict FRP payment timelines, ethanol integration and curbs on IEM speculation signals a maturing, technology-enabled approach to agricultural commodity regulation.
Whether its implementation will match its ambition will depend critically on the capacity of State governments to enforce its provisions — particularly the 14-day FRP payment rule and the Collector-level recovery mechanism — in practice.
All stakeholders have until May 20, 2026 to submit their comments and suggestions to the Department of Food & Public Distribution.
