India backs incentives to export 1.4 mln T raw sugar - govt source

By Mayank Bhardwaj and Nigam Prusty

NEW DELHI (Reuters) - India will give its cash-strapped sugar mills an incentive to produce and export raw sugar, a senior government official said on Thursday, to help cut stocks after five straight years of surplus output.

The government will provide a subsidy of 4,000 rupees ($64) a tonne for exports of up to 1.4 million tonnes of raw sugar, the official, who did not wish to be named, told reporters after a meeting of Prime Minister Narendra Modi's cabinet.

Benchmark New York sugar prices slid around 3 percent on Thursday after India approved sugar export subsidies.

Mills in India, the world's biggest sugar consumer, lobbied the government to agree export incentives to help cut large stockpiles after lower world prices thwarted their efforts to sell on the world market.

India, the world's second biggest sugar producer after Brazil, traditionally produces whites, the refined variety. But mills and trade experts say with the help of government incentives sugar companies can now export raw sugar to standalone Asian and African refineries that turn raws into whites.

Government sources told Reuters last month that New Delhi could soon approve an export incentive of about 4,000 rupees per tonne.

The Indian Sugar Mills' Association (ISMA), a producers' body of private mills, has forecast output of 26 million tonnes in the year that began in October against 24.4 million tonnes the previous year.

Between Oct. 1 and Feb. 15, mills have produced 16.7 million tonnes of sugar, up from 14.5 million tonnes in the year-ago period.

Stung by rising supplies, money-losing mills were forced to dump sugar in the domestic market to raise cash to pay cane growers. This led to a freefall in local prices.

India's raw sugar exports could halve this year because of the delay in the decision on giving mills incentives for exports. Mills exported more than 1 million tonnes of raw sugar in 2014 and had hoped to export up to 2 million tonnes this year.

ISMA put the total surplus at about 2.5 million tonnes and said the incentive should apply to another 1.0-1.5 million tonnes. Mills had more than 7 million tonnes of carryover stocks when the current season began on Oct. 1, 2014, it said in a statement.

($1 = 62.07 rupees)

(Editing by Ruth Pitchford)