The government also extended a freight subsidy to sugar mills for exports by one year. The scheme was to end in April 2008.

"This will help sugar factories to improve their financial position and make final payment of cane to farmers and bank dues," Finance Minister Palaniappan Chidambaram said.

In April, India offered sugar mills a subsidy of more than US$30 a tonne to help exports and cut huge stocks.

In July, the government said mills exporting by road or rail to neighbouring countries such as Nepal and Bangladesh would be paid the lower of their costs or the subsidy.

India's cabinet made five percent blending of ethanol with petrol mandatory from this month and decided to give the option to states to double it to 10 percent.

Chidambaram said that 10 percent blending of ethanol with petrol will become mandatory from October 2008.

He said the import duty on molasses will be cut to 10 percent from five percent.

The government also decided to give loans to sugar mills in lieu of taxes to help them pay dues to farmers.

India's sugar production in the new season that began on Oct. 1 is expected to top 29 million tonnes, up from a record 28 million tonnes.

With domestic consumption estimated at 19 million tonnes and exports put at 1.5 million tonnes, the country is expected to have a huge opening stock of 11.9 million tonnes on Oct. 1.