The increase in duty would make imports unviable and may lead to some jump in domestic sugar prices that could cause burden on consumers but would help revive the business of cash-starved mills who owe farmers around Rs 6,800 crore.
India has been importing sugar in small quantities taking advantage of lower global prices.
According to the notification issued by the Central Board of Excise and Customs, import duty has been raised to 25 per cent on raw sugar and refined or white sugar.
The higher duty will also be applicable to bulk consumers who import raw sugar, the government said, adding that this has been done in public interest.
The Food Ministry had recommended increase in import duty on sugar to 40 per cent. "However, the Finance Ministry has hiked the duty marginally, considering inflationary concerns and to give some relief to domestic millers," a senior Food Ministry official said.
Currently, domestic sugar prices are ruling stable in the range of Rs 34-40 per kg in view of surplus stocks, as per the data maintained by the Consumer Affairs Ministry.
Sugar mills are facing a cash crunch as domestic prices have slipped below the cost of production, hurting their profits.
Mills in Uttar Pradesh are selling sugar at Rs 30.50 per kg, while the cost of production remains at Rs 37 per kg.
Similarly, mills in Maharashtra are selling the commodity at Rs 28.50 per kg as against the cost of production of Rs 31.
Industry Body Indian Sugar Mills Association (ISMA) hailed the decision saying this will improve cash-flow of millers and help clear cane arrears.
"We welcome the decision. At current global prices and rupee-dollar exchange rate, this increase in duty will check all sugar imports, which will certainly improve the domestic market sentiments," ISMA Director General Avinash Verma said.
Currently, sugarcane arrears stand at about Rs 6,800 crore across the country, with the maximum of Rs 5,000 crore in Uttar Pradesh, he added.
The government has announced several measures to improve liquidity of millers.
Earlier this year, the government had rolled out a scheme of Rs 6,600 crore interest-free loan to mills for making cane payments to growers. It is also giving export subsidy.