The food ministry has suggested that only those sugar factories that supply ethanol to oil marketing companies (OMCs) be eligible for availing of subsidy for raw sugar exports, sources said on Tuesday.

The latest recommendation, clubbed with an earlier proposal on the continuation of the raw sugar export subsidy scheme for the current marketing year through September, will soon be placed before the Cabinet Committee On Economic Affairs (CCEA) for approval.

The recommendation is aimed at nudging both private mills and co-operatives, which are the main producers of ethanol, to supply more to OMCs so that the target of blending the bio-fuel with petrol at a 5:95 ratio is met. However, if approved, the proposal could make some sugar co-operatives, which are reluctant to either produce or supply ethanol to OMCs, ineligible for the export subsidy. The government had last year made it clear that it wanted to even double the ethanol blending limit to 10% at the earliest. The country could achieve only 2% ethanol blending limit in the last fiscal, even more than a decade after the government first mooted the idea and endorsed it at various stages.

Last month, the food ministry also proposed that the quantity of raw sugar exports under the subsidy scheme be restricted to 1.4 million tonne for this year.

However, in his meeting with food minister Ram Vilas Paswan and finance minister Arun Jaitley last month,

Maharashtra chief minister Devendra Fadnavis had demanded the subsidy be provided for at least 2.5 million tonne of raw sugar in 2014-15 so

that the cash-starved sugar industry makes timely payments to farmers for cane purchases. Sugar prices have

fallen below cane costs in Maharashtra and Uttar Pradesh, hurting the already-stressed sugar mills.

Considering that only 7.50 lakh tonne of sugar was exported under the scheme in 2013-14, the latest proposal aims to restrict subsidised raw sugar exports at 21.50 lakh tonne by September 2015, compared with outbound shipments of up to 40 lakh tonne, approved by the CCEA in February last year. The ministry has also recommended a subsidy of Rs 4,000 per tonne for raw sugar exports this year.

Last February, the CCEA had approved the subsidy proposal for two seasons through September 2015, aimed at helping mills cut a glut in refined sugar and improve cash flows so that they can repay dues to farmers as well. However, it had also said the “incentive shall be reviewed before the commencement of the next sugar season (2014-15)”.

However, even though the last marketing year ended on September 30, the food ministry hasn’t yet sought the CCEA approval for either the continuation or change to the subsidy scheme, leading to uncertainties and halt in shipments since October. Any further delay will cost the mills dear as they won’t be able to encash the full benefit of the scheme, which will be in effect only up to end-September.