The Union government on Wednesday approved Rs 6,000 crore interest-free loan to sugar mills to help them partly clear cane price arrears to farmers that have touched about Rs 21,000 crore.

The decision, which will cost the exchequer about Rs 600 crore, was taken in a meeting of the Cabinet Committee on Economic Affairs (CCEA) held here on Wednesday.

"Mills have been unable to make payment to farmers because of high production and lower domestic prices. Cane arrears have reached Rs 21,000 crore," Union Minister Nitin Gadkari told reporters after the meet.

"The government has sanctioned interest-free loan of Rs 6,000 crore for farmers. Sugar mills will prepare the list of farmers. And on the basis of that, the amount will be directly transferred by banks into the Jan Dhan accounts of farmers," he said.

The Centre will bear the interest burden of Rs 600 crore from the Sugar Development Fund (SDF), he said, adding that the arrears outstanding till June will be cleared.

"CCEA has provided a 1-year moratorium on this loan, and will bear the interest subvention cost to the extent of Rs 600 crore for the said period," an official statement said.