Agricultural drought is a natural disaster that impacts soil water deficiency, plant water stress, and yield loss. It has several effective drought indices to monitor the impact on agriculture, particularly the evapotranspiration deficit index (ETDI). However, this index has exposed the inconsistency of spatial potential evapotranspiration (PET) because of the restricted spatial distribution of meteorological stations and the influence of spatial heterogeneity. The present study aims to develop the fine spatial PET using the Global Navigation Satellite System-derived Precipitable Water Vapor (GNSS-PWV) and remote sensing data for enhancing the ETDI and determining the impacts of drought on sugarcane yield. The grid PET (GPET) model is developed by the correlation between the land surface temperature from Moderate Resolution Imaging Spectroradiometer (MODIS LST) and the PET from the Revised Potential Evapotranspiration (RPET) model as the ground observations to estimate daily PET at 30-m spatial resolution using spatial extrapolation technique. In addition, the actual evapotranspiration (AET) was evaluated using the Surface Energy Algorithms for Land (SEBAL) algorithm. Both spatial PET and AET were utilized to compute the ETDI as an agricultural drought index. Then, the ETDI was correlated with sugarcane yield to investigate the impact of drought on yield. The results indicated that the GPET model had a strong correlation with the RPET model (R2 = 0.73 and RMSE = 0.84 mm) and relatively good accuracy (RSR = 0.57 and NSE = 0.68). This proposed model could be applied to compute the ETDI with fine spatial resolution. Moreover, the normalized yield of sugarcane exhibited a negative correlation with ETDI in the period from March to April 2020 with a strong relationship (r = −0.83). Therefore, the ETDI is an appropriate index for drought monitoring and determining the effects of drought on yield. These findings are useful for supporting the decision-makers to enhance the national policies for water management in agriculture.