New Delhi: India has decided to build a 3 million tonne stockpile of sugar to soak up excess supply from the domestic market, and grant soft loans worth Rs4,440 crore to help millers expand ethanol output capacity, the food minister said.

The government has also fixed a minimum support price at the mill gate of Rs29/kg for refined sugar, to ensure that retail prices of the sweetener do not fall further, Ram Vilas Paswan told a news conference after a cabinet meeting chaired by Prime Minister Narendra Modi.

The support measures are aimed at cutting a growing sugar surplus and propping up local prices, in order to help both loss-making mills and millions of cane growers who make up a key voting bloc.

Late last month Reuters reported that the government would approve the proposal that would require mills to stock 3 million tonnes of sugar in their warehouses, with the government paying the carrying costs for the commodity. The plan to stock 3 million tonnes of sugar would cost the government Rs1,175 crore, Paswan said.

The government would also spend Rs1,332 crore in the next five years towards interest payments on soft loans worth Rs4,440 crore to be sanctioned to sugar mills, Paswan said.

India, the world’s biggest sugar producer after Brazil, is awash in sugar. Large surpluses have lead to a sharp fall in prices that in turn have made if difficult for mills to pay the country’s 50 million cane growers on time.

“If we take into account 4.9 million tonnes of carryover stocks from the previous season and this year’s production of 36.4 million tonnes, inventories far outstrip our yearly consumption of 25 million tonnes," Paswan said. “This glut has made if difficult for mills to make their sugar cane payments."

Sugar prices have dropped to their lowest in 28 months. As a result, mills now owe nearly Rs22,000 crore to cane growers, which could leap to a record Rs25,000 billion in the current 2017-18 season.

Mounting cane arrears have angered farmers.

Modi’s Bharatiya Janata Party last week suffered a blow in a by-election in Uttar Pradesh, the top sugar producing state in India’s northern cane belt. Analysts viewed the result as a bellwether for a general election due by May 2019.

Modi needs to placate cane growers, whose numbers make them an influential political lobby, to smooth his route back to power next year.

New Delhi scrapped a 20% tax on sugar exports in March, and in April asked mills to export 2 million tonnes of sugar to cut back inventories.

The government also approved a plan to provide financial support to cane farmers for produce sold to sugar mills.

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