Feb. 29 (Bloomberg) -- India, the world's second-biggest sugar producer, may export more of the sweetener this year than previously forecast as mills boost sales before the government scraps a subsidy in October, seven months sooner than planned.

Overseas sales may total as much as 5 million metric tons in the year ending Sept. 30, compared with 3.5 million tons forecast previously, said Prakash Naiknavare, managing director of the Maharashtra State Co-operative Sugar Factories Federation Ltd.

A surge in exports from the South Asian nation may slow this year's 35 percent gain in global sugar prices. Raw sugar, traded in New York, is the sixth-best performer this year among 26 futures in the UBS Bloomberg Constant Maturity Commodity Index.

``I think it's a golden opportunity to lower supply in India and companies will respond anyway,'' Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., India's biggest refiner of the commodity, said in a phone interview. ``Uncertainty about the subsidy had caused a lull in exports. That's ended.''

The government will end the freight subsidy of as much as 1,450 rupees ($36) a ton by Oct. 1, farm minister Sharad Pawar said Feb. 26. The benefit, meant to boost exports amid a record crop last year, was to stay valid until April 19, 2009.

Naiknavare's export forecast is higher than the 3.5 million tons estimated by S.L. Jain, director general of the Indian Sugar Mills Association. India shipped only 1.7 million tons last year because of a ban on exports that was lifted in January 2007.

Mills have shipped 2.5 million tons since Oct. 1, with raw sugar accounting for 60 percent of sales, and can export as much through September, Naiknavare said. Farm minister Pawar said Feb. 26 he'd be ``happy'' if the industry sells 5 million tons overseas and promised to ease delay in shipments because of congestion at ports and non-availability of wagons.

Stockpile Swells

``The government has promised to help with more railway rakes and priority loading at ports to ensure we ship as much sugar as possible,'' he said. ``Selling another 2.5 million tons isn't a tall order.''

India's sugar stockpiles will increase to 18 million tons by Sept. 30, enough to meet the nation's demand for 10 months, the finance ministry said in a report yesterday. Production may reach 27 million tons in the year to September, Pawar said this week, more than the 26 million tons he forecast last month. Output was 28.3 million tons last year.

India competes mostly with Brazil in selling raw and white sugar to buyers in the Middle East, Southeast Asia and Africa. The World Trade Organization last year asked India's government to submit details of the subsidy after Australia and Thailand took the issue to the WTO in Geneva.

India's white sugar is quoted at $345 a ton free on board basis, while raw sugar is offered at $330 a ton, Murkumbi said.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net

Last Updated: February 28, 2008 18:48 EST