India on Thursday more then doubled the quantity of sugar that can be kept in reserve stocks to help mills hit by falling prices and weak exports, but traders said any benefits would be short-lived.
Mills are now free to stockpile up to five million tonnes of the sweetener on behalf of the government, up from cap of two million tonnes, Finance Minister Palaniappan Chidambaram told reporters after a meeting of the federal cabinet.
Domestic supplies of sugar began to swell last July after a ban on exports designed to curb rising prices. India lifted the restriction in January but by then global prices had fallen, making exports unprofitable.
Traders said on Thursday's move would push up prices but only temporarily. "Sugar prices will go up by 5 to 10 rupees for the time being. But the market will again turn bearish, as the government will ultimately release the sugar from its buffer stocks as and when it desires," said Musket Kawada of the Bombay Sugar Merchant Association.
The buffer stocks will be held at sugar mills, but the government will meet maintenance and storage costs. Mills to pay sugarcane farmers will use this money. Stocks will be valid for one year, Chidambaram said, after which the subsidies will stop.
India is likely to churn out a record 28 million tonne of the sweetener in the year to September, up from 19.3 million tonnes last year. It consumes 19-20 million tonnes annually. The buffer stocks are used to run discounted welfare schemes for the poor and tide over any supply disruptions.