India's sugar prices have climbed more than 40% in two months, reaching a record high ahead of the country's major festival season. However, the head of the Indian Sugar Mills Association said the sharp increase is being driven by speculative buying rather than an actual shortage of sugar.

Niraj Shirgaokar, president of the industry body, said sugar stocks and supplies remain comfortable and should be sufficient to meet higher demand during the upcoming festival period.

India is the world's biggest consumer of sugar, and demand normally increases between August and November as households purchase more sweets and confectionery for festivals.

Government Allows Duty-Free Sugar Imports

The sharp price increase has prompted the government to allow duty-free imports of 1 million metric tons of raw sugar. It is the first time in nearly a decade that India has permitted such imports under these circumstances.

Industry officials said the move is intended partly to calm market sentiment and prevent speculative buying from pushing prices even higher.

Shirgaokar said there is no fundamental supply shortage and described the current tightness as artificial.

Festival Demand Expected to Rise

Sugar consumption typically increases during major Indian festivals including Ganesh Chaturthi, Dussehra and Diwali.

Demand for traditional sweets, confectionery and other sugar-based products rises during this period, encouraging traders and businesses to build inventories.

Despite the seasonal increase, industry representatives say existing stocks should be adequate to meet consumer requirements.

Read more: India Bans Sugar Exports Amid Rising Supply and Price Concerns

India Produces 27.9 Million Tons of Sugar

India produced around 27.9 million metric tons of sugar during the marketing year ending September 30, according to Shirgaokar.

Production was slightly below annual domestic consumption, estimated at between 28 million and 28.5 million tons. However, output was higher than the previous year's production of approximately 26.1 million tons.

The figures indicate that India's overall production has improved even as available stocks have declined compared with the previous year.

Ethanol Diversion and Sugar Exports

Indian sugar mills have diverted around 3 million tons of sugar for ethanol production this year.

Mills have also exported approximately 800,000 tons of sugar, against a government-approved export limit of 2 million tons.

The diversion of sugar toward ethanol and exports has affected the amount available for domestic markets, but industry officials maintain that supplies remain sufficient.

Opening Stocks Expected to Fall

India is expected to begin the next marketing year with opening sugar stocks of around 3.5 million tons, compared with approximately 5 million tons a year earlier.

Although lower opening inventories could provide some support to prices, industry representatives argue that the country still has enough sugar to meet domestic demand.

The government is closely monitoring prices as festival consumption approaches and has taken steps aimed at preventing excessive price increases.

Speculation Behind Price Rally

According to the sugar industry body, speculative buying is playing a major role in the recent rally.

Traders anticipating stronger festival demand may be purchasing sugar ahead of time, contributing to higher market prices even though physical supplies remain adequate.

The government's decision to permit duty-free imports is expected to reassure the market and reduce concerns about availability.