New Delhi: The government is likely to raise the levy price of sugar — the rate at which it buys the sweetener from mills to sell through ration shops — by over R2 to about R22 per kg for the current year.

For the 2011-12 marketing year (October-September), the levy price of sugar was 19.04 per kg.

"We have proposed increasing levy price of sugar by over R2 from last year," a senior government official told PTI.

The proposal is under the consideration of the finance ministry. The rise in levy price would entail additional subsidy of R400-500 crore, the official added.

The sugar sector is under government control. Sugar mills are obliged to sell 10 per cent of their production to the government to meet the demand of ration shops.

The levy price of sugar is calculated on the basis of Fair and Remunerative Price (FRP), which stands at R170 per quintal for the 2012-13 marketing year.

The government buys at a below market price from sugar mills and sells at a much cheaper rate of R13.50 per kg through ration shops. The government sells 2.7 million tonnes (MT) of sugar every year to poor through ration shops.

The official said the levy price of sugar is increasing every year but the retail price has been unchanged since 2002.

The government has pegged sugar output for the current year to be 23 MT, as against 26 MT last year. However, the production is expected to be sufficient to meet domestic demand of 21-22 MT.

The official said the government is expected to revise the sugar output estimates after taking into account the second advance estimate of sugarcane production in the next month.