Crop output to rise; time for sugar reform - Pawar

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NEW DELHI (Reuters) - India expects a strong rebound in farm output, which will substantially reduce food price inflation that has soared since last year when the country's worst drought in 37 years hit crops, the farm minister said.

This year's June-September monsoon was 16 percent below normal last month, but rainfall has revived significantly, calming fears of shortages and higher prices.

India also needs to ease tight controls on the sugar sector, Farm Minister Sharad Pawar told a conference of sugar millers on Friday.

"The sugar sector is heavily regulated. This is the time (millers) and government should sit together to decide on easing restrictions on sugar sector," he told the conference.

He said India may allow manufacturers of soft drinks, ice creams and biscuits to raise their sugar stocks following an improvement in supply in the world's top consumer.

Large consumers, which account for more than two-thirds of the sugar sold in India, are currently allowed to stock sugar equivalent to 10 days of consumption.

The government is also considering a tax on sugar imports, Pawar said.

Last year, India withdrew the import tax on sugar and asked big consumers to trim their stocks to ensure steady supplies in the country as local output fell as farmers reduced cane planting and a drought hit output.

But sugar production is now expected to rise.

"The government is actively considering imposition of duty on import of sugar and increasing stock-holding limits for bulk consumers," Pawar said.

On Monday, the minister told reporters the government was planning to tax white sugar imports in the new season that starts in October, but would wait until it gets a clear picture of the cane crop in the next two months.

"Decisions will be taken at an appropriate time," Pawar told millers at the conference.

India's monsoon rains are forecast to be normal this year, but heavy showers in recent days have reduced the seasonal deficit to 10 percent and flooded parts of Haryana and Punjab, the main grain producers.

Pawar said the flood situation was not serious.

(Reporting by Mayank Bhardwaj and Ratnajyoti Dutta; writing by Himangshu Watts; editing by Malini Menon)

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