Sugar output in India is expected to drop 3.7% this marketing year through September, although production would still be marginally higher than consumption, according to the Indian Sugar Mills Association (ISMA).

Output will likely hit 24.2 million tonnes in 2013-14 compared with25.14 milllion tonnes a year before, ISMA said. Consumption is expected to go up by 5.3% to 24 million tonnes, it added.

However, the closing stocks of sugar in the current marketing year (or the opening stocks for the next year) could drop 19.4% to around 7.5 million tonnes, thanks to expected exports of up to 2 million tonnes of sugar in 2013-14 compared with a paltry 0.34 million tonnes a year before, ISMA said.

Although sugar exports have surged this year, a 31% cut in subsidy for raw sugar production for April and May from the R3,300 per tonne offered in February and March has slowed the pace of exports now. The government had in February announced a subsidy on raw sugar production to help mills cut a glut in refined sugar and improve cash flows. Since the country hardly consumes any raw sugar, the subsidy for production is effectively meant for exports. Millers complain the department of food has effected the cut by changing the formula for calculating the subsidy, going against the decision by the Cabinet Committee on Economic Affairs. They say the subsidy quantum for April and May should have been around R3,800 per tonne, factoring in the appreciation of the rupee, and not R2,277 per tonne, as decided by the food department.

Meanwhile, the country's sugar output between October 1 and May 15 dropped 3.2% from a year before to 23.90 million tonnes, partly due to diversion of cane to other consuming industries in states such as Uttar Pradesh. ISMA had said on Thursday that cane crushing had come to an end in the country, except for 20 sugar mills in Tamil Nadu.

Maharashtra, the largest producer, witnessed output of 7.70 million tonnes until May 15 this year, almost unchanged from a year before.

However, sugar output in Uttar Pradesh, the second-largest producer, hit 6.45 million tonnes, down almost 13.4% from a year before. Earlier this year, mills in Uttar Pradesh expressed their inability to start crushing after banks refused to lend them working capital loans citing a drastic mismatch between cane and sugar prices. This forced farmers to sell cane to competiting industries initially, resulting in a drop in sugar production.