New Delhi: The government is considering an additional soft loan of Rs 7,400 crore to sugar mills for creating ethanol capacity under a recently launched scheme, according to sources.

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The food ministry is also considering tweaking the scheme to ensure that non-molasses-based distilleries are also able to avail soft loans under the scheme launched in June for expansion and setting up of new ethanol plants.

Under the scheme, the government had announced a soft loan of Rs 4,400 crore and provided an interest subvention of Rs 1,332 crore to mills over a period of five years, including a moratorium period of one year.

However, the ministry has received 282 applications seeking Rs 13,400 crore soft loans. Out of this, 114 applications for a loan amount of Rs 6,000 crore has been approved, the sources said.

Sources further said the ministry is planning to seek a Cabinet approval for the balance 168 applications and sanction an additional soft loan of Rs 7,400 crore. The subsidy burden would be Rs 1,600 crore for the balance loan amount, they added.

A proposal is being prepared to seek approval for additional soft loan under the scheme as well as amend the rules to allow even grain-based distilleries take the benefits, the sources added.

Currently, molasses-based distilleries are allowed under the scheme. The entry of standard distilleries will help diversion of more cane during surplus season.

Ethanol extracted from sugarcane will be used for blending in petrol and will provide cane farmers a remunerative price for their crop. Ethanol doping in petrol will also help the country cut its oil imports.

India, the world's second biggest producer, is likely to produce 31.5 million tonnes (MT) of sugar in 2018-19 marketing year, slightly lower than 32.5 MT last year, according to industry body ISMA's forecast.