India has removed any limit on sugar export volumes for now, a government source said on Wednesday, adding pressure to global prices, but the world's second-biggest producer could reinstate restrictions later if domestic supplies are threatened.
Ministers met to try to sort out conflicting views on sugar and other agricultural exports from one of the world's biggest food producers.
Farm Minister Sharad Pawar, a powerful ally of the coalition government, had called for more sugar exports beyond the 3 million tonnes already approved for the year to September 30, while the food ministry had dithered on an allocation mechanism.
"Sugar exports have been freed, and there will not be any quantitative restriction, but we will stop it (exports) once it reaches a particular level," the government source told reporters on condition of anonymity.
The decision followed a series of policy flip-flops and delays to implementing overseas sales, which kept global markets on edge.
India took a similar line on wheat and rice exports late last year, removing restrictions on sales but tacitly eyeing a limit in case global demand threatened domestic supplies.
Raw sugar futures sank 1.77 per cent to 20.58 cents a lb by 1628 GMT, close to a one-year low, pressured by the potential extra exports and by the start of the harvest in Brazil, the world's largest producer.
"The market does not need Indian export supplies, because the global market is in surplus," said James Kirkup, head of sugar brokerage at ABN AMRO Markets in London, adding that prices could fall enough to make it unprofitable for Indian mills to export.
The government remains anxious over supplies after having to import sugar following a severe drought in 2009, sending international prices spiralling upwards.
In the current year, production is expected to be 26 million tonnes and domestic demand around 22 million tonnes, the second year of a surplus.
"The decision has come due to adequate supplies in the domestic market as production exceeded demand in the last couple of seasons," said Harish Galipalli, head of commodities research at JRG Wealth Management.
"This a long awaited, positive step which will help the industry and farmers," said Narendra Murkumbi, managing director of Shree Renuka Sugars, the country's biggest sugar refiner which last week called for unrestricted exports.
Sugar mills, sitting on higher stocks than they need, owe 100 billion rupees to farmers, Abinash Verma, director general of the Indian Sugar Mills Association, a producers' body, said on April 24.
The meeting of finance, food, farm and trade ministers with Prime Minister Manmohan Singh also agreed to set up a committee to agree on a long-term policy on grain exports. The issue has pitted Pawar, a champion of farmers, against the food ministry, which is concerned about domestic inflation.
Pawar has also clashed with Trade Minister Anand Sharma over cotton exports, but on Monday these too were freed.