With sugar production in the 2014-15 season expected to be around 26 million tonnes as against the earlier estimated 25-25.5 mt, millers say cane payment dues to farmers by March are expected to be more than the Rs 13,000 crore seen in March 2014.

The dues by the end of January had already touched Rs 11,000 crore because of a widening gap between the ex-mill sugar price and the cost of production, aggravated by a high government-determined sugarcane purchase price. India's sugar season runs from October of one year to September of the next.

"It is important for the government to take corrective policy decisions to ensure that not only sugar prices stop from falling but should recover the fall it suffered in the last four months of Rs 300 a quintal. It is only then that mills would be able to pay the cane price to farmers and repay loans on time," A Vellayan, president of Indian Sugar Mills Association (Isma), told reporters on Friday.

He said the government should not delay in announcing an export incentive for raw sugar to the extent of Rs 4,500 a qtl, which would help absorb the surplus of 1-1.3 mt to some extent and also help in recouping some of the loss.

In addition, steps should be taken to ensure that if any state government wants to incentivise farmers over and above the price as arrived by the formula suggested by the Rangarajan commission in 2012 (chaired by the then prime minister's economic advisory council head), they should do it directly through cash.

The central government on its part has already initiated a move to offer the raw sugar export incentive. The proposal has been okayed by the food ministry and is now awaiting a final nod from the cabinet. "We have moved a note to give an export incentive of Rs 4,000 per quintal for exporting 1.4 million tonnes of raw sugar in 2014-15. This is expected to be discussed in a meeting of the Union Cabinet next week," a food ministry official said.

"The debt burden on the Indian sugar industry has risen from Rs 11,000 crore to Rs 36,000 crore in five years, which reflects the poor financial situation and this should be restructured, including a payment moratorium of three to five years," said Vellayan.

Abinash Verma, director general of Isma, said the cost of producing sugar in Uttar Pradesh was around Rs 3,500 a qtl, while the sale price had fallen to Rs 2,700-2,750 a qtl. In Maharashtra, the cost was Rs 3,000 a qtl, while the sale price was Rs 2,450 a qtl. These are the two biggest producing states, together contributing 80 per cent of the country's annual output.

He noted that the government in Karnataka had adopted a price formula based on the Rangarajan recommendations. Also, it has transferred Rs 100 a qtl directly to the bank account of farmers. This could be done in other states, too.

In India, the central government fixes a price that mills should pay for purchasing cane from farmers but states are also free to determine their own rates.

India's sugar production in the 2013-14 season was estimated at 24.3 mt.