(Fixes typos in paragraphs 6-7)
By Mayank Bhardwaj
NEW DELHI, June 5 (Reuters) - India is set to announce support measures to cut a growing sugar surplus and prop up local prices, the food minister said on Tuesday, a move aimed at helping loss-making mills and millions of cane growers who make up a key voting bloc.
Prime Minister Narendra Modi’s cabinet is likely to back the proposals as early as Wednesday.
The measures include building a 3 million tonne government stockpile to soak up excess supply from the domestic market and granting soft loans worth 45 billion Indian rupees ($670 million) to help millers expand their ethanol production capacity, Food Minister Ram Vilas Paswan said.
Modi’s Bharatiya Janata Party last week suffered a blow in a by-election in Uttar Pradesh, the top sugar producing state in India’s northern cane belt. Analysts viewed the result as a bellwether for a general election due by May 2019.
Modi needs to placate India’s 50 million cane growers, whose numbers make them an influential political lobby, to smooth his route back to power next year.
Paswan said the measures could cost the government 80 billion rupees, but refused to give full financial details.
“We’ll be able to give you the details about these measures once the cabinet clears this,” Paswan said.
India, the world’s biggest consumer of sugar and No. 2 producer after Brazil, has in the past created government stockpiles, or buffer stocks, to tackle supply gluts caused by yo-yoing output.
Late last month Reuters reported that the government would approve the proposal that would require sugar mills to stock 3 million tonnes of sugar in their warehouses, with the government paying the carrying costs for the commodity.
Shares of sugar companies such as Dhampur Sugar Mills Ltd , Mawana Sugars Ltd, Balrampur Chini Mills Ltd and Avadh Sugar & Energy Ltd <AVAD.NS > jumped on Tuesday in anticipation of the measures.
Sugar prices have dropped to their lowest in 28 months, exacerbating financial woes of sugar mills. Citing their poor financial health, mills have said they are unable to pay cane farmers on time.
Mills owe more than 220 billion rupees to the cane farmers for this year, Paswan said. Rising cane arrears have angered farmers. The government also approved a plan to provide financial support to cane farmers for produce sold to sugar mills.
New Delhi scrapped a 20 percent tax on sugar exports in March, and in April asked mills to export 2 million tonnes of sugar to cut back inventories. ($1 = 67.1450 Indian rupees) (Reporting by Mayank Bhardwaj; Editing by Alex Richardson)