India will allow unrestricted exports of 500,000 tons of sugar, the farm minister said on Wednesday, helping global prices ease as the market expects more overseas sales as the country swings back to a surplus.

"The modalities will be worked out in the next 10 days. Exports will happen on a monthly basis. We will review it every month," Sharad Pawar told reporters.

He said state governments had sent encouraging reports about output in the new sugar season that began in October.

India, the world's top consumer and the biggest producer behind Brazil, is expected to churn out 25.5 million tons in 2010/11, up from 18.8 million tonnes in the previous year.

"I am getting positive reports about production from the states and we should capitalise on good international prices so that mills can pay on time to farmers," Pawar said.

Ahead of Pawar's announcement, two government sources had said the government was likely to allow 300,000 tonnes to 500,000 tonnes of unrestricted sugar exports.

India has already allowed sugar exports to help mills meet an obligation against imports of raws between 2004 and 2008. The government has also permitted exports of imported sugar backed up at ports due to shortage of railway wagons.

The market was waiting for unrestricted exports, popularly termed as sales under Open General Licence (OGL).

Pawar said his government would later decide whether to allow more exports under OGL.

"We have surplus to export up to 2 million tonnes in OGL. The government should allow exports quickly so Indian mills can sell their produce before Brazilian crop hits the market," said Ashok Jain, president, Bombay Sugar Merchants' Association.

Prices Ease
In Kolhapur, a key domestic market in top-producing Maharashtra state, the most traded variety closed 0.39 percent down to 2,789 rupees ($61.45) per 100 kg.

At 1490 GMT, New York benchmark prices were at 30.50 cents per lb, down 0.91 percent.

"I think it's (Indian exports) likely to weigh on prices," said Ker Chung Yang, investment analyst Phillip Futures in Singapore.

Also, an arm of the trade ministry on Wednesday, said India had allowed exports of 8,200 tonnes raws to the US. According to a WTO rule, India can export 8,200 tonnes of sugar annually to the US and 10,000 tonnes to the EU.

Traders say exports to the US and EU under the WTO rule are a regular feature and too tiny to impact markets. (Reuters)