(Corrects Modi spelling in paragraph 2)
By Mayank Bhardwaj
NEW DELHI, Oct 20 (Reuters) - India could for the first time pay sugarcane farmers in part for produce sold to debt-laden mills, two government sources said on Tuesday, as part of efforts to help politically strong growers as well companies struggling with a global glut.
Prime Minister Narendra Modi's government is encouraging mills in the world's No. 2 producer to raise exports to as much as 4 million tonnes this marketing year to cut both local stocks and cane dues to farmers in big states such as Uttar Pradesh and Maharashtra.
His government is now considering directly paying farmers 55 rupees ($0.85) for every tonne of cane produced, while mills will come up with about 98 percent of the costs, said one of the sources directly involved in the decision-making process.
The government would limit such pay-outs to 15 billion rupees ($230 million), said the second source.
Before Modi's office vets the proposal, the trade and finance ministries will discuss the idea, first mooted by the food ministry.
Food ministry spokesman N.C. Joshi declined to comment.
Trade and industry officials expect a confirmation once restrictions on announcements that could influence voters end post-local elections in the eastern state of Bihar on Nov. 5.
Every year the federal government fixes the price that mills must pay growers but some key cane growing states, especially Uttar Pradesh, raise the price further to satisfy the demands of cane growers, a big voting bloc.
For the 2015/16 season that began on Oct. 1, the federal government fixed the cane price at 230 rupees per 100 kg. Uttar Pradesh, which asked mills to pay 280 rupees per 100 kg to farmers last year, has not announced this year's price yet.
Five straight years of surplus output in India have led to a freefall in local sugar prices, hitting the financial health of most mills. A sharp rise in cane prices and difficulties in exporting into the subdued global market was a double whammy.
Sugar prices have fallen more than a fifth while cane prices have gone up by more than 50 percent since the 2009/10 season. As a result, mills have deferred cane payments that have reached as high as 120 billion rupees.
But recent hopes of government help have boosted the shares of Indian sugar companies such as Bajaj Hindusthan Sugar BJHN.NS , Shree Renuka Sugars SRES.NS , Simbhaoli Sugars SIMB.NS and Bannari Amman Sugars BANN.NS .
($1 = 65.0152 Indian rupees)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC: Indian sugar exports and production
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