The Centre today withdrew its scheme to provide a production subsidy of Rs 4.50 per quintal of cane crushed by mills as retail prices of the sweetener have improved in the domestic market.
To help cash-starved mills to clear cane arrears, the government in December 2015 announced the sugar production subsidy to be paid directly to cane growers.
"The production subsidy scheme notified on December 2, 2015 has now been withdrawn by the government with immediate effect," said a notification issued by the Food Ministry.
The scheme has been withdrawn due to rise in the prices of sugar, which at present are ruling at over Rs 40 per kg in the retail market, a Food Ministry official explained.
The government had offered the production subsidy as mills were facing liquidity crunch due to low retail sugar prices. The subsidy was subject to a condition to export certain quota of sugar and supply of ethanol to local oil marketing companies.
Mills have so far exported 1.6 million tonnes of sugar, against the mandatory quota of 3.2 million tonnes fixed for the ongoing 2015-16 season (October-September). More exports are unlikely considering surge in domestic sugar prices.
Retail sugar prices in past two months have crossed Rs 40 per kg due to 11 per cent fall in domestic sugar output in the ongoing 2015-16 season.
To control prices and hoarding, the government had recently imposed stock limits on sugar traders.
And now, the government has decided to withraw the production subsidy as well. It is also mulling over lowering import duty on sugar to curb price rise.
Sugar production in India, the world's second largest producer, is estimated to be about 25 million tonnes in 2015-16, as against 28.3 million tonnes last year.
