The world number 38 Indian, who had notched up victories against higher-ranked Yun Hu of Hong Kong and Korea's Wan Ho Sun in the last two rounds, went down 10-21 15-21 against Sugiarto, a silver medallist at the World Junior Championships in Incheon.
The 20-year-old Indian, who was crowned the National Championship in New Delhi, could not pose much of a challenge to Sugiarto in the opening game as after 3-3, the Indonesian broke off and kept extending his lead to eventually pocket the game comfortably.
Top shuttler Saina Nehwal, P V Sindhu and P Kashyap lost in the second round yesterday.