Sugar mills may get some relief from the government following a proposal to raise the interest rate subsidy on loans against excise duty paid by the mills during the last and current financial years.

According to officials, the proposal may come up for discussion during a meeting of Cabinet Committee of Economic Affairs.

Earlier, the government had decided to allow mills to access loans from banks against excise duty to help them clear dues to cane growers.

It also cleared a 5 per cent interest subsidy on the loans, bringing down the actual interest rate to 7-8 per cent, considering a prime lending rate of 12-13 per cent.

Officials said the sugar directorate had earlier recommended allowing mills to defer the payment of excise collected for two years, which would have acted as an interest free loan for the period.

The finance ministry is of the view that since farmers get short-term credit at 7 per cent, it would not be prudent to allow sugar mills to access loans below 7 per cent.

According to sugar directorate estimates, sugar mills are likely to seek a loan of Rs 3,600 crore (Rs 36 billion) with full interest subvention at 12 per cent pegged at Rs 1,278 crore (Rs 12.78 billion) for a two-year period.

Meanwhile, the Centre has allocated 1.3 million tonnes sugar for open market sale in December as against 1.2 million tonnes a year ago.

The open market quota allocated for December is the same as that for November.

In November, however, the government had also allowed mills to sell 91,808.5 tonnes unsold levy sugar in the open market in addition to November open market allocation.

The government has also allocated 182,000 tonnes levy sugar for sale in December under the public distribution scheme, up from 167,000 tonnes a year ago.