New Delhi/ Mumbai: India, the world’s biggest sugar consumer, will allow imports of 500,000 tonnes of duty-free raw sugar, a government official said on Wednesday, as a drought has cut output below consumption levels for the first time in seven years.

Duty-free imports would be allowed until 12 June, said the official, who declined to be named, as he is not authorised to talk to media.

India levies a 40% import tax on sugar.

Imports by India, the world’s second-biggest sugar producer, could support global prices, which jumped more than 3% in early trades on Wednesday. Only last year mills in India exported 1.66 million tonnes of sugar.

India’s sugar output in the 2016-17 season that began on 1 October is likely to fall to 20.3 million tonnes, down from 25.1 million tonnes a year earlier.

Indians, known for their love of anything sweet, consume around 25 million tonnes of sugar a year.

“At zero duty, imports are very attractive. There is a difference of Rs5,000 a tonne to Rs6,000 (per tonne) in local and overseas prices," said a Mumbai-based trader with a global trading firm.

The Indian sugar industry is divided over the imports, with some mills seeking duty-free supply, while others are opposed to the move, afraid of a crash in local prices.

“Imports were not required, as local supplies are ample due to last year’s carry forward stocks," said Sanjeev Babar, managing director of the Maharashtra State Co-operative Sugar Factories Federation.

India started the 2016-17 year with an inventory of 7.75 million tonnes from last year’s harvest.

“We welcome the strategic decision to allow imports," said Praful Vithalani, president of the All India Sugar Trade Association. “Since the government has not allowed large-scale imports, prices will not crash here and, at the same time, local supplies will pick up and the availability will go up."

Local sugar prices have risen 8% from a year ago, in expectations of a drop in production. Reuters