At a high-level meeting convened by Food Minister Ram Vilas Paswan, it was decided that the import duty will be raised to 40 per cent from 15 per cent.
It was also decided that the export subsidy will be extended till September this year to give relief to the sugar industry, which owes Rs 11,000 crore to cane growers largely in Uttar Pradesh.
Efforts will be made to implement mandatory 5 per cent ethanol blending with petrol and subsequently achieve 10 per cent blending.
The meeting held at the instance of Prime Minister Narendra Modi's was attended among others by Transport Minister Nitin Gadkari, Commerce Minister Nirmala Sitharaman, Principal Secretary to the PM Nripendra Misra and Cabinet Secretary Ajit Seth.
"We have taken four key decisions. We have decided to extend the interest-free loan given against excise duty paid by sugar mills for five years instead of three years," Paswan told reporters after the meeting.
Industry Body Indian Sugar Mills Association (ISMA) hailed the decision saying this will improve cash-flow of millers and help clear cane arrears.
"There is a need to improve the sugar prices to allow mills to at least cover their cost of producing sugar," ISMA Director General Avinash Verma said in a statement.
Sugar stocks registered a sharp increase following the government's decision.
Verma said that a 40 per cent duty on imports would ensure that sugar from abroad does not flood the market, which is already surplus with 20-25 lakh tonnes.
"This would definitely improve the market sentiments, domestic sugar prices and better buying by the traders and wholesalers," he said.
He said today's decision could result in a rise in sugar prices by Rs 1-2 per kg in the wholesale market from the current range between Rs 28 and 31 per kg.
Paswan said mills can avail additional interest-free loans of up to Rs 4,400 crore from banks, he said, adding this will improve their cash flow to make cane payments.
However, the minister said the department is yet to calculate the exact interest-free loans to be provided to the industry against excise-duty.
In December, the Centre had approved Rs 6,600 crore interest-free loans for the sugar industry for clearing cane arrears. It decided to give loans via banks equivalent to the excise duty paid by the mills in the past three years.
These decisions will be subject to the mills giving guarantee that they will clear Rs 11,000 crore sugarcane arrears at the earliest, Paswan said.
"We don't have any problems to announce these incentives formally if millers are ready to make payments. If they give assurance today, we will announce incentives today itself", Paswan said.
Some of the decisions will be notified by concerned ministries, while some require the Cabinet nod, he added.
Expressing concern over mounting cane arrears, Paswan said, "While the Centre fixes the cane price, some states are fixing higher prices that are putting burden on millers. There should be a holistic view on pricing."
ISMA's Verma said: "Out of Rs 6,600 crore claims for loans, about Rs 4,000 crore has been disbursed by banks so far based on the eligibility and the criteria set by the government".
"If this is taken into account, we expect Rs 2,500-3,000 crore loans may finally get disbursed out of the approximately Rs 4,400 crore claims that might come up," he said.
"With improvement in the sentiment because of these decisions taken by the government, we should be able to sell sugar and clear cane arrears soon, which is our top priority," Verma said.
The sugar industry has been facing a cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years.
Currently, sugarcane arrears stand at about Rs 11,000 crore across the country, with the maximum of Rs 7,200 crore in Uttar Pradesh.
Mills are facing a cash crunch as domestic prices have slipped below the cost of production, hurting their profits. They also fear domestic prices could fall further if cheaper imports are not curbed.
Currently, sugar is being imported in smaller quantities. The decision to hike the import duty is expected to curb such shipments.
Sugar rises by Rs 60 on import duty hike
Sugar prices rose up to Rs 60 per quintal in its prices on the country's leading wholesale markets on stockists buying after the government raised import duty on the sweetener to 40 per cent besides additional interest-free loan of Rs 4,400 crore for mills.
Further, increased offtake by bulk consumers to meet summer season demand also influenced prices.
In the national capital, Sugar ready M-30 and S-30 traded higher at Rs 3,320-3,460 and Rs 3,300-3,430 as against previous levels of Rs 3,270-3,400 and Rs 3,250-3,380 per quintal. Thus showing a rise of Rs 50/60 per quintal.
Fears that sugar prices may rise further in the wake of government's decision to discourage import by raising duty to 40 per cent and improve funds liquidity for the domestic sugar mills, stockists were seen enlarging positions, said sugar traders.
They said if monsoon remains subdued, prices are well set to rise further in coming days.
"The hike in duty will support domestic sugar industry and make imports costlier", said a wholesale sugar trader in the national capital.
The loan will be provided to cash-starved sugar mills to make payments to cane farmers, while the import duty on sugar will be hiked to 40 per cent from the current 15 per cent, Food and Civil Supplies Minister Ram Vilas Paswan said.
In order to bail out sugar mills that are unable to pay Rs 11,000 crore dues to sugarcane growers, the government also extend subsidy of Rs 3,300 per tonne on export till September this year.
In line with general trend, sugar mill delivery M-30 and S-30 followed suit and traded higher at Rs 3,160-3,300 and Rs 3,140-3,240 against last close of Rs 3,130-3,245 and Rs 3,110-3,225 per quintal, respectively.
In the millgate section, Mawana, Kinnoni and Asmoli also ended higher at Rs 3,230, Rs 3,300 and Rs 3,250 from previous levels of Rs 3,160, Rs 3,240 and Rs 3,210 per quintal, respectively.
At Mumbai's Vashi wholesale market, Small sugar (S-30) advanced by Rs 25 per qunintal to Rs 3,030/3,152 from last Satursday's closing level of Rs 3,005/3,152.
Medium sugar (M-30) climbed by Rs 15 per quintal to Rs 3,152/3,316 as against last weekend level of Rs 3,152/3,301.