At the end of February mills need to be holding as inventory at least 83 percent of the opening stock from January and February's production. The limit is 86 percent for the end March, the government order said.
Local sugar prices have fallen 17 per cent since the start of the marketing year on Oct. 1 as mills were aggressively selling to pay farmers cane price.
India has raised cane price by 11 percent and mills are required to pay cane farmers within two weeks of harvest.
India increased the import duty on sugar to 100 percent from 50 percent on Tuesday.