The situation arose in the wake of steep fall in sugar prices due to a glut in the market on record production.
Frantic buying by ice-cream and soft-drink makers amid reduced supplies mills, mainly pushed up sweetener prices.
The government’s measures are likely to result in an increase in sugar prices and moderate the decline in profitability of mills, thus enabling timely payment to farmers. However, overall profitability outlook for the sugar sector remains weak for FY19.
The Cabinet, headed by Prime Minister Narendra Modi, also approved a Rs 1,300 crore interest subversion on the loan to be provided for creating new ethanol production capacity as also expanding the existing one, sources said.
A bailout package has been worked out days after the BJP lost Lok Sabha by-poll in Kairana constituency in Uttar Pradesh, the country's largest sugarcane producing state.
Prime Minister Narendra Modi's cabinet is likely to back the proposals - which include building a 3 million tonne government stockpile to soak up excess supply from the domestic market - when it meets on Wednesday, the sources two said.
Farmers such as Mohan Sawant, who this year planted cane on two acres of land, say they will be sticking with the crop in the marketing season that kicks off on October 1 as it still offers larger profits than alternatives such as wheat.
Sugar prices ended quiet at the wholesale market in the national capital today following scattered buying by stockists and bulk consumers amid adequate stocks.
"With the reduced cane costs, the total contribution margin is likely to increase by around Rs 500 per tonne of sugar produced, which translates into a one-and-a-half per cent margin at the operating level," Icra Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.
The company reported a disappointing Q4 on the back of weak performance of the sugar segment which is expected to remain a drag on the overall profitability in the coming year.
Sugar prices dropped by Rs 30 per quintal at the wholesale market in the national capital today, followed by bumper stocks. Marketmen said heavy ready stocks positions on relentless supplies from mills because of record production, mainly dragged down sugar prices.
Both the Group of Ministers (GoM) will submit their reports within 15 days, Finance Ministry said in a statement hours after the meeting of the GST Council.
"Till April 30, 2018, sugar mills have produced 31.03 MT sugar in the current season. With 130 sugar mills still operating, majorly in Uttar Pradesh, it is expected that sugar production during the current season might end up between 31.5-32 MT," Indian Sugar Mills Association (ISMA) said in a statement.
Road Transport and Highways Minister Nitin Gadkari, Food Minister Ram Vilas Paswan and Petroleum Minister Dharmendra Pradhan today held a meeting to discuss ways to deal with huge cane arrears to growers.
The government last month allowed export of 2 million tonnes of sugar under the MIEQ scheme for the 2017-18 marketing year, in order to clear surplus stocks and improve cash flow to millers for making payment to sugarcane farmers.
The association demanded that the government should provide production-linked incentive to cane farmers as it was done in 2015-16 marketing year.
The monsoon is critical to replenish 81 reservoirs necessary for power generation, irrigation and drinking
India, the world's biggest sugar consumer, last month scrapped a 20 percent export tax and made it compulsory for mills to export at least 2 million tonnes of sugar. But mills said they would incur a loss of at least $150 a tonne because global prices were near a 2-1/2-year low.
Sugar output has increased 49 percent to 28.18 MT so far in 2017-18 marketing year
Consequently, total cane arrears are estimated to have reached Rs 16,200 crore as on March 31 of the current marketing year (October-September). Of this, Uttar Pradesh has maximum arrears at Rs 7,200 crore, it added.
India's surplus will rise as output from the state of Maharashtra, the country's second-biggest producing state, is expected to jump to 10.6 million tonnes, from last year's 4.2 million tonnes, B.B. Thombre, the president of WISMA, said on Monday.
A notification issued by the Central Board of Excise and Custom said that it has been decided to reduce export duty on raw sugar, white or refined sugar from 20 per cent to Nil.
Sugar output of India, the world's second largest producer after Brazil, stood at 20.3 million tonnes in 2016-17 marketing year (October-September).
Domestic consumption is estimated at 26 million tonnes, and markets are betting on 1.5 million tonnes of exports in the next 6-7 months.
Prices of wheat, sugar, pulses and edible oil moved upward last week after multiple import duty hikes by the government over the past few months.