Prime Minister Narendra Modi’s government could also raise the price at which oil companies buy ethanol from sugar mills to blend with petrol, the sources said.
The moves would help mills avoid losses and boost their ability to pay the government-fixed prices for sugar cane owed to millions of growers.
“Ethanol and sugar price hike proposals are on the table, and a final call will be taken after checking with all the relevant ministries,” said a government source, who declined to be named as he was not authorised to talk to the media.
Sugar companies have been seeking an increase in the state-set floor price of 31 rupees per kg, unchanged since 2019, as cane prices paid by mills to farmers have risen about 29% in that time.
The western state of Maharashtra and neighbouring Karnataka, which together produce more than half of India’s sugar, have also asked the federal government to raise the floor price for sugar to help mills pay cane prices to farmers on time.Mills would struggle to pay the state-set cane price if sugar prices remain under pressure, said Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories.”Prices for sugar and ethanol need to go up soon so mills don’t end up losing money,” Naiknavare said.
Sugar mills are also struggling with surplus ethanol capacity.
The sugar sector had initially expected to divert 4.5-5 million tons of sugar to ethanol this year, but only 28% of the total allocation for the biofuel went to sugar-based ethanol, with the rest directed to grain-based plants using feedstocks such as rice and corn.
India last week allowed sugar exports of 1.5 million metric tons in the new season.
With food prices falling, inflation is not a concern, which gives the government room to raise sugar prices, trade and industry officials said.