India is likely to provide financial support to cane farmers for produce sold to sugar mills, two government sources said, in a rare move to subsidise the industry which is reeling under a glut and struggling to export because of low global prices.
India, the world's biggest sugar consumer, last month scrapped a 20 per cent export tax and made it compulsory for mills to export at least 2 million tonnes of sugar. But mills said they would incur a loss of at least $150 a tonne because global prices were near a 2-1/2-year low.
Prime Minister Narendra Modi's administration is likely to approve a proposal to pay around Rs 55 ($0.84) for every tonne of cane sold to the mills, two government sources said, seeking anonymity in line with government policy.
Although India is not planning any direct incentive for sugar exports, rival suppliers such as Brazil, Australia and Thailand could still lodge complaints with the World Trade Organization (WTO), saying such support will help Indian industry to sell overseas.
Brazil, the world's biggest sugar producer, has already expressed concerns over the policies that support overseas sales of the sweetener from India and neighbouring Pakistan.
But it will boost the prospects of 50 million cane farmers, an influential political lobby, and 524 mills struggling with massive mounds of sugar.
While the government plans to pay Rs 55 a tonne to cane farmers, mills would pay the rest of the state-set price, sources said.
Every year, the federal government fixes the price that mills must pay to cane growers, but Uttar Pradesh state, the biggest producer, usually raises the rate to placate farmers.
For the 2017/18 season, the federal government fixed the cane floor price at Rs 255 per 100 kg, while Uttar Pradesh raised the rate to Rs 315 per 100 kg.
"While cane prices have risen sharply, sugar prices have nosedived, making it very difficult for most mills to pay cane growers," said Abinash Verma, director general of the Indian Sugar Mills Association, a producers' body.
India, also the world's biggest sugar producer after Brazil, is likely to churn out a record 30.3 million tonnes of the sweetener in the 2017/18 season that ends on September 30, up from 20.3 million tonnes in the previous year, hammering local prices down by more than 15 per cent in the past six months.
Sugar mills now owe Rs 170 billion ($2.62 billion) to farmers.
Of late, restive farmers have taken to the streets to protest against meagre incomes, forcing some state governments to write-off billions of dollars in farm debts.