India will raise its import duty on sugar to 40% from 15%, as the government tries to revive business at mills that owe farmers around $1.84 billion, the food minister said on Monday.
The climb in import duty will make overseas purchases nearly unviable for refiners in the world's biggest consumer of the sweetener, hitting shipments from suppliers such as Brazil, Thailand and Pakistan.
"We have reached a consensus to raise the import duty to 40%," Ram Vilas Paswan said after meeting senior government officials.
Local sugar prices, which had been stifled by rising stockpiles, jumped 1.5% following the announcement and are likely to rise further if monsoon rains stay subdued as expected in the next few weeks, dealers said.
Paswan also told reporters the subsidy on raw sugar exports would be extended until September. India increased the subsidy for raw sugar earlier this month to boost output and exports.
But large-scale exports are unlikely in the short term, as most of this year's raw sugar output has already been shipped.
India is likely to export more than 2 million tonnes of sugar in 2014/15 as the top consumer is set to produce a surplus of the sweetener for the fifth straight year despite chances of reduced rainfall, a commodities executive said earlier this month.
Boost to biofuel
The government has also decided to raise the mandatory level for blending ethanol in gasoline to 10% from 5%, Paswan said.
Trying to emulate the success of Brazil's booming biofuel industry, India launched its ambitious ethanol blending programme in 2006, but disagreements between sugar mills and oil companies over pricing stymied progress.
New Delhi is now trying to promote ethanol blending that could help it in reducing its current account deficit and also boost mills' earnings. Indian mills produce ethanol from molasses, a byproduct of sugar production.
The government is also considering extending the duration of repayments of interest free loans made to mills against excise duty to five years from three years, Paswan said.
Shares of sugar makers such as Bajaj Hindusthan Ltd Shree Renuka Sugars Balrampur Chini Mills and Dhampur Sugar Mills jumped more than 10% following the government announcement in a weak Mumbai market.