Dozens of people became ill earlier this week after drinking methanol -- a poisonous form of alcohol sometimes used as an antifreeze -- sold in several villages across Gujarat state.
Senior police official Ashok Yadav told AFP that 31 people had since died in Botad district.
Another 11 people died in nearby Ahmedabad district, V Chandrasekar, another senior police official, told AFP.
"Investigation has revealed that the victims had consumed industrial grade methanol which caused the deaths," state Home Affairs Minister Harsh Sanghavi said in statement.
Sanghavi said that 97 people had been admitted to hospital for treatment, with two in critical condition.
Gujarat, the home state of Prime Minister Narendra Modi, is one of several states in India where the consumption and sale of liquor is illegal.
Authorities have cracked down on illicit liquor shops across Gujarat and arrested several people, said state police chief Ashish Bhatia on Wednesday.
Hundreds of people die every year in India from cheap alcohol made in backstreet distilleries.
Of the estimated five billion litres of alcohol drunk every year in the country, around 40 percent is illegally produced, according to the International Spirits and Wine Association of India.
The liquor is often spiked with methanol to increase its potency. If ingested, methanol can cause blindness, liver damage and death.
Last year, 98 people died in the northern state of Punjab after drinking bootleg booze.
And in 2019, more than 150 people died in a similar incident in northeastern Assam state, most of them tea plantation workers.