domestic prices mean India is unlikely to find buyers overseas for its surplus sugar. In fact, mills have been importing raw sugar, drawn by lower overseas prices.
India is likely to import 1.5 million tonnes of sugar in the year to September 2013 and imports will continue next year unless import duty is hiked, sugar broker Kamal Jain said.
India sets a floor price that mills must pay farmers, which individual state governments can increase to ensure returns for a crop that takes around a year to mature.
For this season, the northern state of Uttar Pradesh, India's second-biggest sugar producer, has raised by as much as 16 percent the price mills must pay for cane, while mills in top producer Maharashtra have agreed to pay nearly a fifth more after protests by farmers.
With a general election to be held by early 2014, mills will face pressure to raise cane prices again for the year starting from Oct. 1, Narvekar said. Farmers are a key block of India's voters and moves to please them form part of election strategy.
Such pressures would further push up mills' prices to domestic wholesalers and bulk consumers.
"It is difficult for India to export even in coming years, due to higher production costs. If it rises, then ultimately mills can't sell sugar below a certain level," said Mukesh Kuvadia, secretary of the Bombay Sugar Merchants Association.
Western Maharashtra and the southern cane-producing states of Karnataka and Tamil Nadu are reeling from a harsh drought that could drive sugar production in the 2013/14 season below consumption for the first time in four years.
Such scarcity would give farmers the upper hand in negotiating cane prices with mills next year.
Cane supplies will remain tight even in 2014/15 as drought slashes planting and affects crops, said Balasaheb Patil, chairman of the Sahyadri Co-operative Sugar Mill in Maharashtra.