BEAT together egg, water and 1/4 cup oil in large bowl. Add sugar, salt and flour. Mix until smooth.
HEAT remaining 1 1/2 cups oil to 360 degrees F in deep skillet. Dip chicken pieces, one piece at a time, into batter. Fry 20 to 30 minutes or until juices run clear when pierced with a fork (165 degrees F). Turn chicken often for even browning.
For spicier chicken, add 1 teaspoon paprika and 1/4 teaspoon pepper to batter.