The direct assistance of Rs 13.88 per quintal of cane crushed will be given to farmers from the 2018-19 season, which starts from October.
However, to avail of the assistance, mills will have to mandatorily export their share of 5 million tonnes export quota.
The quantum of sugar that each mill will export will be determined on the basis of last three years' production and the assistance to farmers will be released once the export obligation is fulfilled.
In the 2017-18 sugar season, a similar direct assistance of Rs 5.5 per quintal, totalling around Rs 15.40 billion, was extended to mills provided they mandatorily exported 2 million tonnes of sugar.
However, due to a suppressed international market, mills could export just 0.4-0.5 million tonnes of the obligatory quota.
"This is a welcome move from the central government, particularly as exports are the dire need of the hour. The export subsidy for sugar mills
located near the ports will help Maharashtra, Karnataka and Gujarat based units to start exporting raw sugar from next month," Prakash Naiknavare, managing director of National Federation of Cooperative Sugar Factories (NFCSF), told Business Standard.
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Abinash Verma, director general of Indian Sugar Mills
Association, said the government's decision to pay Rs 13.88 per quintal of sugarcane as part of FRP directly to the farmers would reduce the industry's cane price liability by around 5 per cent over the next year's FRP of Rs 275 per quintal of sugarcane. Verma added that it would substantially lower expenditure and working capital requirement of sugar mills
in the next year.
The Centre's package comes close on the heels of a similar dole announced by the UP government this week amounting to Rs 44 billion, much of which will be in the form of soft loans to mills on the condition that it is used to make cane price payment to farmers.
Out of the total of over Rs 130 billion of sugarcane dues that are yet to be paid to farmers, a bulk -- around Rs 100 billion -- is in Uttar Pradesh, which is India's second-biggest sugarcane growing state.
Some experts said the urgency on part of both the central and state governments to clear sugarcane dues is understandable given that the broader sugar economy has a direct bearing on almost 38 Lok Sabha seats in UP out of the total 80.
This is the second financial package to bail out the sugar industry after Rs 85 billion announced in June.
The industry is facing a glut-like situation because of record production of 32 million tonnes (mt) in the 2017-18 marketing year (October-September), resulting in a closing stock of 10 mt at the end of this month.
India's sugar output is set to increase further to 35 mt in the next marketing year from 32 mt in 2017-18. The annual domestic demand stands at 26 mt.
The government has taken a slew of measures to bail out sugar mills as well as cane farmers in the last one year.
First, it doubled the import duty on sugar to 100 per cent and then scrapped the export duty on it. It also made it compulsory for millers to export 2 mt of sugar even as global prices were low.
In June, the government had announced a Rs 85-billion package for the industry, which included soft loans of Rs 44 billion to mills for creating ethanol capacity. It will bear an interest subvention of Rs 13.32 billion for this.
Around Rs 12 billion was allocated for the creation of 3 mt buffer stock of sugar. The minimum selling price of the sweetener has been fixed at Rs 29 per kg.
Early this month, the government had approved an over 25 per cent hike in the price of ethanol produced directly from sugarcane juice for blending in petrol, in a bid to cut surplus sugar production and reduce oil imports.
The CCEA raised the procurement price of ethanol derived from 100 per cent sugarcane juice to Rs 59.13 per litre from the current rate of Rs 47.13.
The price for ethanol produced from B-heavy molasses (also called intermediary molasses) was hiked to Rs 52.43 a litre from the current Rs 47.13, but that for ethanol produced from C-heavy molasses was reduced marginally to Rs 43.46 from Rs 43.70.