NEW DELHI/MUMBAI - India is likely to consider on Wednesday a proposal to get mills to export 5 million tonnes of sugar by incentivising overseas sales in the 2018/19 season, two government officials said.
The world's second biggest sugar producer is trying to reduce a growing stockpile and the rise in shipments could put pressure on global prices that are trading at near their lowest level in a decade.
But it could also help Prime Minister Narendra Modi's government during an election year by ensuring farmers get the cane price they were promised.
Saddled with massive stocks of sugar and a sharp fall in prices, mills have said they are unable to pay cane farmers the government's fixed price on time. Sugar companies owe about 135 billion rupees ($1.85 billion) in the current season to cane growers, who form a large voting bloc, a government official told Reuters.
"To help mills export 5 million tonnes of sugar, the government is likely to give them transport subsidies worth 30 billion rupees," a second official said.
The government is also planning to raise the price it pays directly to cane growers to 138 rupees a tonne in the 2018/19 season starting from Oct 1, up from 55 rupees this season, government sources said.
"These steps are aimed at helping sugar companies clear cane arrears to farmers," said the first official.
In March, India had asked mills to export 2 million tonnes of sugar and fixed a mandatory export quota for each mill, but mills have so far managed to export around 500,000 tonnes.
India will surpass Brazil as the world's top sugar producer next year, with the South American country losing its lead for the first time since the 1990s as its mills allocate more cane for ethanol production and as low investment dents yields.
But excessive production has become a headache for India as it fails to export the surplus because prices in the world market are lower than local prices, forcing the government to provide incentives.
India could start the new season with inventory of over 10 million tonnes and could produce another 35 million tonnes in the season, the Indian Sugar Mills Association (ISMA) estimates.
"Exports is the only way to ensure farmers get the promised price for cane," said B. B. Thombare, managing director of Natural Sugar & Allied Industries, a sugar mill based in western Indian state of Maharashtra.
The south Asian country is also likely to raise the minimum selling price on Wednesday for sugar to 32,000 rupees per tonne for 2018/19 season from 29,000 rupees in the current season, the sources said.