By Mayank Bhardwaj
NEW DELHI (Reuters) - The cabinet could soon approve an increase in the raw sugar subsidy paid to mills to about 4,000 rupees ($64) per tonne as it looks to cut large stockpiles, two government sources with direct knowledge of the matter told Reuters.
India, the world's biggest producer behind Brazil, paid a subsidy of 3,300 rupees to produce and export raw sugar in the season that ended in September.
The subsidy proposal will soon go for approval to Prime Minister Narendra Modi's cabinet, the sources said.
The country is sitting on massive mounds of the sweetener due to the fifth straight year of surplus output, which has depressed local prices and strained mills' finances.
Additionally India, which is also the world's biggest sugar consumer, has failed to export because of weak global prices. New York raw sugar futures, the global benchmark, are trading near a more than four year low hit in the third quarter of 2014.
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With the help of the incentives, mills say they will be able to sell raw sugar to standalone refineries in Asia and Africa.
"Looking at the current global trade dynamics, merely extending last year's export subsidy will not be of any help," said one of the sources.
Export incentives and rising global prices may finally help Indian sugar mills clinch export deals in the 2014/15 season.
New York sugar futures are up slightly so far this year, after four consecutive years of falls. Reversing weeks of losses, Indian sugar prices gained 2.5 percent to $461 a tonne in the week to Thursday.
Indian sugar mills produced 7.5 million tonnes of the sweetener between Oct. 1 and Dec. 31, more than a quarter higher than a year earlier, as crushing in the biggest cane producing state of Uttar Pradesh started a week in advance, a producers' body said on Monday.
(Editing by Michael Urquhart)