The government has decided to allow duty-free import of sugar for sale in the domestic market, in view of the projected slump in output and rising retail prices of the commodity.

Commerce minister Kamal Nath said the cabinet committee on economic affairs has taken up the issue in view of an expected decline in domestic sugar output in the current year.

"Yes, it has been permitted," he said. However, the CCEA is yet to make an announcement to this effect, he added.

India, the second-largest sugar producer in the world, expects domestic production to fall by 32 per cent to 18 million tonnes this year from about 26.4 million tonnes last year.

The country needs 22 million tonnes of sugar a year for domestic consumption. The easing of the import regime would help to fill the gap between domestic consumption and availability of the sweetener.

The government currently allows duty-free import of raw sugar on the condition that the refined product is re-exported within two years. They are not allowed to sell sugar in the domestic markets.

Sugar prices in Mumbai have been ruling high amidst rising demand. In the Vashi market, the S-30 grade sugar was quoted at Rs2,050-2,060 per quintal (100 kg), up from Rs1,950-1,960 per quintal last week.

Asian sugar prices were also higher compared with two weeks ago as buyers began returning to the spot market.

Cash premiums in Thailand, Asia's largest exporter, were quoted at 40-50 points to the ICE benchmark March contract for prompt shipment.

The ICE March 2009 sugar contract settled at 12.75 cents a pound on Monday, up from 12.26 cents/lb on 16 January.