Top sugar producing state Maharashtra approves export subsidy - source

By Rajendra Jadhav

MUMBAI (Reuters) - India's biggest sugar producing state, Maharashtra, approved a subsidy of 1,000 rupees per tonne for raw sugar exports, a senior state government official said, in an attempt to reduce inventory that has depressed local prices.

Exports from India, the world's second-biggest producer and largest consumer, would put pressure on global prices that are struggling to revive from six-year lows.

Maharashtra accounts for most of the raw sugar produced in the south Asian country.

The state cabinet approved the incentive for the raw sugar produced in the 2014/15 marketing year ending on Sept. 30, the government source, who declined to be named, told Reuters on Tuesday.

"Subsidy will be applicable for exports of 800,000 tonnes raw sugar," the official said.

The state has been contemplating export incentives since February.

"Exports subsidy will help mills, but large quantity is unlikely to be shipped," said Sanjeev Babar, managing director of Maharashtra State Co-operative Sugar Factories.

"Most sugar factories have closed their operation. They produced mainly white sugar. Availability of raw sugar is limited for exports."

Indian mills traditionally produce whites for local consumption, although lately the government has encouraged them to produce raws for exports in an attempt to trim bulging inventories.

"This is time to provide subsidy for white sugar exports. Then only mills can reduce inventory meaningfully and clear farmers' dues," said a dealer with global trading house, who was not authorized to speak to the media.

Surplus production for five straight years has piled up inventories and the country is likely to start the new marketing year on Oct. 1 with carry forward stocks of 9.5 million tonnes.

Due to plunging domestic sugar prices - down 16 percent over the past seven months - mills' financial health has been eroded to the extent that they now owe more than $3 billion to cane growers for purchases made since Oct. 1, 2014.

In February, the central government decided to give mills a subsidy of 4,000 rupees a tonne for exports of up to 1.4 million tonnes of raw sugar, an incentive some traders said may be too little as global prices remain weak with large supplies from top producer Brazil set to flood the market soon.

(Reporting by Rajendra Jadhav; editing by Susan Thomas)