The food ministry has raised subsidy for raw sugar production during June and July to the initial level of R3,300 per tonne after a 31% cut for the previous two months stoked sharp protest from the industry.

Following a meeting on June 5, new food minister Ram Vilas Paswan had sought to rationalise the subsidy, which was approved by the cabinet committee on economic affairs (CCEA) in February to enable mills to diversify their product base and cut a glut in refined sugar, aimed at reducing cane arrears.

Paswan is learnt to have decided against winding up the subsidy scheme a year ahead of the scheduled expiry of September 30, 2015, as proposed by former food minister KV Thomas. The CCEA had earlier announced the scheme for production of raw sugar up to four million tonne until end-September 2015. The subsidy for production is effectively meant for exports as domestic consumption of raw sugar is negligible.

Indian Sugar Mills Association (ISMA) director general Avinash Verma hailed Paswan's decision "to restore the export incentive back at R3,300 per tonne" for June and July. He hoped the "mistake of reducing the incentive rate for April and May to R2,277 per tonne even though the rupee had appreciated is now rectified". He said the raw sugar contracted for exports earlier that couldn't be shipped out because of reduction of the incentive in April and May will now get exported. Verma also welcomed any decision to continue the subsidy scheme until September next year.

In May, the ministry had notified a subsidy of R2,277 per tonne for raw sugar production during April and May, compared with R3,300 per tonne approved by the CCEA for February and March. The industry had complained the move was against the decision of the CCEA, which had directed the food department in February to review the subsidy amount every two months, factoring in only currency fluctuation in the last seven days of the previous month.

Millers said the move was also unfair as the rupee appreciated against the dollar in April and May, in which case the subsidy amount should have been even higher in this period than the previous level.

Millers said based on the formula approved by the CCEA in February, the subsidy amount should have been R3,800 per tonne for April and May due to appreciation of the rupee against the dollar in the review period.

While approving the subsidy amount of R3,300 per tonne for February and March, the CCEA had calculated the value of the rupee at 62.44 against the greenback. However, the domestic currency has since appreciated to 59.36 against the dollar on Thursday.

As cane arrears hit a whopping R11,000 crore as of end-May, Paswan last week said the government was weighing proposals, including raising an import duty on sugar to 40% and offering loans to mills against the excise duties paid by them over the last five years, to enable mills to clear the dues at the earliest.

He also said the government will renew the commitment to make mandatory blending of ethanol with petrol at a 5:95 ratio with vigour. Of the R11,000 crore arrears piled up until end-May this marketing year that started on October 1, Uttar Pradesh alone accounts for R7,200 crore.