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New Delhi: In a first-of-its-kind direct subsidy payment to farmers, the government has approved a production subsidy to sugarcane growers.

For the sugar season that began in October, farmers will be paid 4.50 per quintal of cane crushed by mills and the money will be paid directly to farmers, the cabinet decided on Wednesday.

It will ensure timely payment to farmers by mills and reduce their cost of procurement, the government said in a statement.

The subsidy will be paid to the farmers on behalf of the mills and will be adjusted against the cane price payable to the farmers towards the fair and remunerative price (FRP), including arrears relating to previous years, the statement added.

FRP is the government-mandated minimum to be paid by mills for procuring cane. The current FRP is fixed at 230 per quintal.

“Because of the continuous intervention of the central government -- for example, we gave 6,000 crore as soft loans in an earlier cabinet decision -- we have been able to bring down arrears to about 6,000-6500 crore," power minister Piyush Goyal said in a briefing on the cabinet decisions.

In order to further reduce these arrears and support cane growers, the government has taken out a World Trade Organization compliant scheme in which production subsidy will be given to offset the cost of cane, he added.

The sugar industry welcomed the move. “This decision is significant as it means that the government is no longer shying away from owning up the FRP it fixes for sugarcane, by directly contributing for a part of the cane price, instead of continuously burdening the millers," Abinash Verma, director general of lobby group Indian Sugar Mills Association (ISMA), said in a statement.

“It will reduce industry’s liabilities towards cane to that extent, reducing a part of its losses," he added.

According to ISMA’s estimates, the direct subsidy will cost around 1,100 crore.

Surplus domestic production for the past five years led to subdued sugar prices, affecting the liquidity of sugar mills. Dues to cane growers peaked at 21,000 crore in April.

The Centre had earlier increased the export subsidy on raw sugar from 3,300 per tonne to 4,000 per tonne and disbursed soft loans of 4,047 crore, in a bid to ease the burden on sugar mills.

The government also fixed remunerative prices for ethanol for blending with petrol and targets under the blending programme was scaled up from 5% to 10%.

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