New Delhi, Feb 15 (IANS): Union Food Minister Ram Vilas Paswan on Thursday said Minimum Selling Price (MSP) of sugar has been increased by Rs 2 to Rs 31 per kg in order to help millers clear pending dues of sugarcane farmers that now amount to Rs 20,167 crore.

The decision means the mills will not be able to sell sugar below Rs 31 in the open market.

"There have been demands from the millers to hike the MSP as they said their profits were reduced. We have taken the decision of increasing MSP by Rs 2 in order to provide more liquidity to the sugar mills so that they are able to pay the arrears or dues to the sugarcane farmers," Paswan told reporters here.

He said the impact of the decision on the reduction in arrears will be known after a month.

Paswan also said the decision would not lead to an increase in the retail prices and they will remain below Rs 40 per kg.

"We keep monitoring the situation. If something happens, we will see what can be done," he said.

According to the Food Ministry, total arrears to sugarcane farmers, as on February 13, had increased to Rs 20,167 crore including Rs 7,229 crore in Uttar Pradesh, Rs 4,792 crore in Maharashtra and Rs 3,990 crore in Karnataka.

The millers had demanded the government give assistance in terms of bridge loans and increase the MSP to improve cash liquidity to enable them to release cane payment arrears.

In December last year, Nationalist Congress Party chief Sharad Pawar wrote to Prime Minister Narendra Modi seeking the government's intervention for the release of collateral sugar held with the public sector banks to boost exports which were stuck due to the difference in subsidy payments.

Refuting the charges of the decision of increasing the MSP being politically motivated ahead of Lok Sabha elections, Paswan said it was taken to just help farmers to get their payment.