India has scrapped a 20 percent sugar export tax, a government source said on Tuesday, to help boost overseas sales in a year of surplus production. Last week Reuters reported that India, the world`s biggest consumer of sugar, would axe the export tax and then make it compulsory for mills to export a combined 2 million to 3 million tonnes to cut bulging stocks at home. The country is likely to produce a record 29.5 million tonnes of sugar in the 2017/18 season ending on Sept. 30, up 45 percent from the previous year, pulling down local prices more than 15 percent over the past six months.

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Shares of sugar companies such as Balrampur Chini Mills Ltd, Dalmia Bharat Sugar and Industries Ltd and Shree Renuka Sugars Ltd rose by as much as 5 percent on Tuesday afternoon after the announcement. The move to scrap the tax helps to improve local sentiment, but lower global prices could make it difficult for India to sell on the world market, said a Mumbai-based dealer with a global trading firm who was not authorised to speak to media.

Pakistan, which has decided to give subsidies for sugar exports, is selling the sweetener at $340 per tonne, a price India would find difficult to match, said the dealer. India`s current domestic price for sugar is $460 a tonne, free on board.

In late January, Pakistan increased the amount of sugar eligible for export subsidies to 2 million tonnes from 500,000 tonnes to reduce its own excess supplies. If the global market continues to be unattractive for Indian exporters, New Delhi could consider giving incentives to sugar mills to export, government officials told Reuters last week, without giving any details on what they might be.

India could impose a tax on local sales of sugar and use this fund to give incentives for exports, they said. Indian mills could also find it difficult to export large quantities of sugar this season as most mills have already produced the refined white variety by now.

The world market needs more raw sugar than refined, so exports from India could be rather limited this year, industry officials said. India`s sugar season runs from October to September, but cane crushing gathers momentum around December and tapers off by March and April.