New Delhi: India's sugar output is estimated to decline by 4.62 per cent to 26.8 million tonnes in the 2015-16 marketing year, says an ICRA report.


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The estimate is, however, higher than the government's projection of 26 million tonnes of sugar output this year but slightly lower than industry body ISMA's estimate of 27 million tonnes for the same period.


The country had produced 28.1 million tonnes of sugar in the 2014-15 marketing year (October-September).


"ICRA expects a decline in the domestic sugar production to 26.8 million tonnes during 2015-16," ICRA's latest report said.


The likely fall in sugar output coupled with compulsory exports of 4 million tonnes may result in a decline in closing stocks to 7.6 million tonnes this year from 10.1 million tonnes in 2014-15, it said.


"While the expected decline in the sugar stocks is positive, it may not result in a significant increase in the domestic sugar realisations as the closing stock would still remain high," the report added.


According to ICRA, due to increase in fair and remunerative price (FRP) of cane and absence of linkage of cane rates to sugar and by-product realisations in the State Advisory Price (SAP) adhering states, the profitability and debt coverage of sugar mills would continue to be under stress in the near term resulting in continued dependence on government support to clear cane arrears to farmers.


"With continued pressure on international sugar prices, the effectiveness of mandatory exports in supporting domestic prices remains to be seen," it said.


While the government has supported the sugar mills by providing interest free loans to the tune of Rs 6,000 crore to clear cane dues and compulsory exports to tackle the high sugar stocks in the domestic market, the key aspect of linking the sugar and by product realizations with cane costs in SAP adhering states is yet to be addressed, it added.


ICRA said: "Though in the short term these loans would aid the mills in clearing the cane arrears to some extent, the debt servicing burden of the sugar mills would increase as they would start repaying the loans after a year."


In September, the government notified minimum indicative export quota for sugar mills to export four million tonnes in current marketing year.