UPDATE 1-India mulls aid to sugar mills plus $1.17 bln in loans
* India's raw sugar exports likely to pick up
* Ministers favour 10 blending of ethanol with petrol
* India to examine feasibility of buffer stocks of sugar (Recasts lead, adds quotes, details)
NEW DELHI, Dec 6 (Reuters) - India is considering giving sugar mills as much as $1.17 billion in interest-free loans to help them pay cane-growers, plus additional incentives to encourage them to produce raw sugar for export, its farm minister said on Friday.
Mills in India, the world's biggest sugar producer after Brazil, traditionally produce white sugar. But there are few buyers for it on the global market, while raw sugar can be sold easily.
Sugarcane crushing, which typically starts Nov. 1, has been delayed this year and started only this week as farmers demanded a rise in prices to compensate for increases in fuel and fertiliser costs.
But millers have refused to pay more, citing falling sugar prices. Refined sugar has fallen about 8 percent in the domestic market in the past year.
The proposed loans and subsidies were recommended by a panel of ministers formed by Prime Minister Manmohan Singh to look into demands by the beleaguered mills. Its recommendations need to be approved by the cabinet.
"We want to encourage production of raw sugar. To get these steps approved, we will go to (the) cabinet as soon as possible," Farm Minister Sharad Pawar told reporters after a meeting of the panel of ministers on Friday.
The loans would help mills pay the money they owe to farmers.
India, the world's biggest sugar consumer, is set to produce a surplus for a fourth straight year in 2013/14. But global sugar prices also are down, this week falling to three-month lows due to expectations for global oversupply.
Other measures recommended by the panel included raising ethanol blending in petrol to 10 percent from the current level of 5 percent, which can help mills increase earnings.
India launched an ambitious ethanol-blending programme in 2006, trying to emulate the success of Brazil's booming biofuel industry, but disagreements between mills and oil companies over ethanol pricing has stymied progress.
IMPORT TAX MAY GO UP
Mills have also demanded an increase in import tariffs on sugar to 40 percent from 15 percent currently.
"Careful watch will be kept on imports of sugar, and if necessary the import duty will be raised to a reasonable level," Pawar said.
The panel also asked the governments of sugar-producing states to look at the possibility of linking cane and sugar prices.
R. Rangarajan, the prime minister's economic adviser, has already recommended that 70 percent of prices realised from sugar and sugar products should be passed on to cane growers.
State governments, which typically force mills to pay cane-growers more than the price fixed by the federal government, have yet to agree. The existing arrangement helps local governments woo farmers who form a major voting bloc.
The committee has also asked the food ministry to examine the feasibility of creating buffer stocks to trim bulging stocks at mills.
India started the new sugar marketing year on Oct. 1 with carry-forward stocks of 8.8 million tonnes. It is expected to produce 25 million tonnes this year against a demand of 23 million tonnes.
Shares in Indian sugar companies including Bajaj Hindusthan Ltd, Shree Renuka Sugars Ltd, Balrampur Chini Mills Ltd rose on Friday, extending gains after the announcement of potential relief for the industry. (Reporting by Mayank Bhardwaj; Writing by Rajendra Jadhav; editing by Jane Baird)
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