The government on Wednesday approved a Rs 5,500 crore package for the sugar industry that includes over two-fold jump in production assistance to cane growers and transport subsidy to mills for export up to 5 million tonnes in the marketing year 2018-19.

The Cabinet Committee on Economic Affairs (CCEA) approved the food ministry's proposal that seeks to address the surplus domestic stock of sugar and help mills in clearing huge cane arrears of around Rs 13,000 crore.

The CCEA approves the total assistance of Rs 5,500 crore to support the sugar sector by wake of offsetting cost of cane and to facilitate export of sugar from the country, thereby improving liquidity of the industry enabling them to clear cane price arrears of farmers, an official statement said.

The total package is of Rs 5,538 crore, of which Rs 1,375 crore pertains to transport subsidy to millers and the remaining amount will be credited directly to sugarcane growers as production assistance.

With assembly elections due in some states and upcoming general polls in mid-2019, the government wants to address cane growers payment issue.

This is the second financial package to bail out the sugar industry after Rs 8,500 crore announced in June. The industry is facing a glut-like situation because of record production of 32 million tonnes (MT) in the 2017-18 marketing year (October-September), resulting in a closing stock of 10 MT at the end of this month.

Under its 'Comprehensive policy to deal with excess sugar production in the country', the CCEA approved increase in the production assistance paid to growers to Rs 13.88 per quintal for the 2018-19 marketing year from Rs 5.50 per quintal this year in order to offset the cost of sugarcane to sugar mills.

With low global prices, the CCEA also approved export of 5 million tonnes of sugar under the Minimum Indicative Export Quota (MIEQ) during 2018-19 by compensating expenses towards internal transport, freight, handling and other charges.

The cabinet approved giving transport subsidy of Rs 1,000 per tonne for the mills located within 100 km from ports, Rs 2,500 per tonne for mill located beyond 100 km from the port in coastal states and Rs 3,000 tonnes per tonne for mill located in other than coastal states.

Like in the current year, the production assistance will directly be credited into the sugarcane farmers' account on behalf of the mills as part of the government's measures to clear more than Rs 13,500-crore in arrears sugar mills have towards farmers.

Sources had earlier said the government will have to bear about Rs 4,500 crore on account of these measures to help sugar mills and cane farmers.

These steps will enable mills to boost sugar exports and clear cane arrears, which currently stand at Rs 13,567 crore. Mills in Uttar Pradesh owe the maximum at Rs 9,817 crore to cane farmers.

India's sugar output is set to increase further to 35 MT in the next marketing year from 32 MT in 2017-18. The annual domestic demand stands at 26 MT.

The government has taken a slew of measures to bail out sugar mills as well as cane farmers in the last one year.

First, it doubled the import duty on sugar to 100 per cent and then scrapped the export duty on it. It also made it compulsory for millers to export two million tonnes of sugar even as global prices were low.

In June, the government had announced a Rs 8,500-crore package for the industry, which included soft loans of Rs 4,440 crore to mills for creating ethanol capacity. It will bear an interest subvention of Rs 1,332 crore for this.

The Centre had also announced assistance of Rs 5.50 per quintal of cane crushed, amounting to Rs 1,540 crore to mills. Around Rs 1,200 crore was allocated for the creation of 3 MT buffer stock of sugar. The minimum selling price of the sweetener has been fixed at Rs 29 per kg.

Early this month, the government had approved an over 25 per cent hike in the price of ethanol produced directly from sugarcane juice for blending in petrol, in a bid to cut surplus sugar production and reduce oil imports.

The CCEA raised the procurement price of ethanol derived from 100 per cent sugarcane juice to Rs 59.13 per litre from the current rate of Rs 47.13.

The price for ethanol produced from B-heavy molasses (also called intermediary molasses) was hiked to Rs 52.43 a litre from the current Rs 47.13, but that for ethanol produced from C-heavy molasses was reduced marginally to Rs 43.46 from Rs 43.70.