* Indonesia issues permit of 800,000 T for Dec-Feb delivery
* India approves interest-free loan to sugar mills
* Raw sugar prices at lowest in more than three years (Adds India's decision to give cheap loans to mills)
By Lewa Pardomuan and Mayank Bhardwaj
SINGAPORE/NEW DELHI, Dec 19 Indonesia's demand for raw sugar could help absorb excess supply in the global market that has sent prices to multi-year lows, as second-largest producer India moves to help ailing millers.
New York sugar futures have fallen by more than half since early 2011 as supply outstrips demand, forcing key producers to work extra hard to find buyers. India, also the world's top consumer, is struggling to sell its sugar.
Although Indonesia may not buy Indian sugar due to quality concerns, any purchases by the southeast Asian nation could offer a respite to global prices, which have tumbled to their weakest in more than three years this week.
Indonesia, the world's top importer of raw sugar, has issued a permit to import 800,000 tonnes of raws for delivery from December 2013 to February 2014, as part of its 2014 import allocation.
"The number seems high, but the timing is good, given low global prices," said Tom McNeill, director of Brisbane-based commodities analyst Green Pool.
"It may give a small boost to demand in the first quarter of 2014, but won't relieve the general oversupply."
Raw sugar consumption in Indonesia's food and beverage industries climbed 9 percent last year and similar annual gains are forecast over the next five years as a population boom fuels domestic demand.
ICE raw sugar futures and Liffe whites extended losses to 3-1/2-year lows on Wednesday, falling deeper into oversold territory as funds continued to sell a market weighed down by surplus supplies.
Falling sugar prices led the Indian government on Thursday to approve a five-year interest-free loan of $1.0-$1.1 billion to help mills pay government-set prices to cane growers.
The loan would help reduce the mills' burden, said Abinash Verma, director general, Indian Sugar Mills Association, a producers' body.
Next week, the government could also consider other sops, such as incentives for production of 4 million tonnes of raw sugar and doubling the mandatory blending of ethanol in gasoline to 10 percent.
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, larger than demand of 23 million tonnes.
"I think this move by the Indian government will boost supplies as cane growers now have more incentive to produce sugar even when global sugar prices are low," said Vanessa Tan, an investment analyst at Phillip Futures.
"I feel that it is also likely because of the Indian government's commitment towards boosting exports to narrow their current account deficit."
India's current account deficit in the September quarter narrowed to $5.2 billion, or 1.2 percent of GDP - the lowest since the June quarter of 2009. In the quarter that ended in September 2012, the gap was $21 billion, or 5 percent of GDP. (Additional reporting by Yayat Supriatna in JAKARTA and Ratnajyoti Dutta in NEW DELHI; editing by David Evans)