Mumbai: The centre will provide interest-free loans for sugar mills to clear cane price arrears of 2006-07 and 2007-08 seasons and improve  liquidity in a period of glut, a government statement said.

The loans will be for a period of four years and will have a two-year moratorium. Mills that are functional during 2006-07 and 2007-08 season can avail of the loans, the ministry of consumer affairs said in the statement on its website.

Interest subvention will be limited to 12 per cent a year, the statement added.

Earlier, on Friday, minister of state for finance S S Palanimanickam had informed the Lok Sabha that the government has decided to give bank loans to sugar mills at a lower interest rate to help them tide over the crisis in the wake of falling prices of the commodity.

Sugar mills in private, public and co-operative sectors would be given bank loans under special guidelines that will also involve interest subvention, said in a written reply.

This move from the centre will go a long way to solve the problems of the sugar sector in Maharashtra, Uttar Pradesh and other states.

Sugar industry is reeling under a production glut and crashing prices. The glut has impacted prices in India, which have fallen to record lows in the past one year. Prices in the futures market have fallen by over 27 per cent in a year, data from National Commodity and Derivaties Exchange Ltd showed.

Global sugar market is also down following India''''s record production of the sweetener. According to London-based International Sugar Organisation, India may produce 33.15 million tonnes of sugar in 2007-08 as against 29 million tonnes a year ago. Indi''''as total domestic consumption is estimated at 19.5 million tonnes.