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MUMBAI (Reuters) - India, the world's biggest sugar consumer, could soon ramp up imports of the sweetener as a sharp drop in global prices and a stronger rupee make overseas purchases viable despite stiff tariffs, industry players said.
Rising demand from India, which typically churns out its own sugar to use in everything from fizzy drinks to sticky snacks, could support benchmark global prices that have been trading near 16-month lows.
However, it would pressure Indian prices, potentially making it difficult for mills that process sugar cane to pay farmers rates stipulated by the government.
"At the current (international) price level, refiners can import sugar for domestic consumption and make a profit," said Rohit Pawar, chief executive of Baramati Agro, which operates sugar mills in the western state of Maharashtra.
Dealers estimate the cost of sweetener produced from raw sugar shipped in from abroad, including the 40 percent import duty, is around 32,000 rupees ($496) per tonne, about 8 percent cheaper than local sugar at 34,600 rupees.
A stronger rupee also makes the dollar-denominated price tag on overseas cargoes more affordable for Indian mills. The rupee has risen more than 5 percent against the dollar this year.
That comes after the government in April allowed the duty-free import of 500,000 tonnes of sugar by the end of June to keep a lid on prices after local production fell by a fifth from a year ago.
Nearly 60,000 tonnes of that 500,000 tonnes is yet to land in the country and the government is likely to extend the duty-free imports' period by up to two months, a government official, who declined to be named, said.
"Right now refiners are processing duty-free imports. From the next month they could start importing (duty-paid) sugar for local consumption," said a sugar miller based at Kolhapur in Maharashtra. He declined to be identified as he was not authorised to speak with media.
Traders said predicting the scale of potential imports was tricky.
"It is difficult to estimate how much Indian refiners will import ... (while) paying tax," said a New Delhi-based dealer with a global trading firm.
"The market has not anticipated additional imports. Once imports start, local prices could crash and could make larger imports unviable."
Local sugar prices have already fallen to their lowest level in three months in the wake of the duty-free imports and due to a cooler summer than usual, which curbed appetite for cold treats such as ice cream.
"There is a need to raise import duty on sugar to 70 percent. Otherwise imports will pull down prices further and make it impossible for mills to pay the government's fixed cane price," said Baramati Agro's Pawar.
India has increased by nearly 11 percent the price sugar mills must pay cane growers in the next sugar season beginning in October.
There is no immediate plan to raise import duty on sugar and wheat, the government official said.
"Mills cannot pay higher prices for cane unless they manage to sell sugar at higher prices," said Sanjeev Babar, managing director of the Maharashtra State Co-operative Sugar Factories Federation.
"There is a need to stop imports as next season we will be self-sufficient in sugar production."
India's 2017/18 sugar output is expected to jump a quarter from the previous year to 25 million tonnes.
($1 = 64.5200 Indian rupees)
Reporting by Rajendra Jadhav; Additional reporting by Mayank Bhardwaj; Editing by Joseph Radford and Susan Fenton