New Delhi, April 29: The government today hiked the import duty on sugar to 40 per cent from 25 per cent and removed the excise levy on ethanol to help the industry pay cane arrears that have increased to Rs 21,000 crore.

"The duty on the import of sugar under the OGL (open general licence) shall be increased to 40 per cent against the current level of 25 per cent. This will prevent any imports if international prices of sugar were to depress further," said an official statement after a meeting of the cabinet committee on economic affairs.

Sugar producers said traders were importing the sweetener despite surplus production in the country as prices in the global market were lower than the domestic market. Also, domestic producers are mandated to pay high state government-fixed prices for the sugar cane they buy from farmers, which pushes up input costs.

The government has also decided to remove "excise duty on ethanol supplied for blending". At present, a central excise duty of 12.36 per cent is levied on ethanol.

"It has been decided that ethanol produced from molasses generated during the next sugar season and supplied for ethanol blending will be exempted from excise duty and the price benefit will be passed on the to the sugar mills/distilleries," the statement said.

Abinash Verma, director-general of Isma, said, "The immediate need is to reduce the surplus of 35 lakh tonnes of sugar blocking almost Rs 10,000 crore of cash flows and the need to improve the current ex-mill prices which are at its lowest in the last 6 years will not get addressed by the above decisions.

"We urge the government to quickly decide on buying out 10 per cent of current year's sugar production. Only this step will help the industry come out of the crisis in the short run and ensure that a major portion of cane price arrears of farmers are cleared before the start of the next sugar season."

The Centre had in August last year hiked the import duty on both raw and refined sugar to 25 per cent from 15 per cent. In February this year, it provided a subsidy of Rs 4,000 per tonne on exports of 1.4 million tonnes of raw sugar.

Sugar prices are depressed because of surplus domestic production in the past four years. The mills are pressed for cash and are facing difficulties in clearing cane dues they owe to the farmers.

"This has affected the incomes of 50 million sugarcane farmers. Similar conditions of subdued prices prevail in the global markets," it said, adding that as on March 31, 2015, cane dues stood at Rs 20,099 crore.

Apart from the hike in import duty and removal of excise duty on ethanol, the government has decided to withdraw the duty free import authorisation (DFIA) scheme.

Under this, exporters of sugar could import permissible quantities of raw sugar without any duty for subsequent processing and disposal.

Similarly, the period for discharging export obligations under the advanced authorization scheme for sugar will be reduced to six months to prevent the possibility of any leakage into the domestic markets, it added.