The Union Cabinet is likely to discuss a proposal on Wednesday for providing an additional Rs 6000-crore soft loan to sugar mills to increase their ethanol production capacities under an incentive scheme. The proposal may include non-molasses-based distilleries.

Under the scheme, the government had last year announced a soft loan of Rs 4,400 crore, and provided an interest subvention of Rs 1,332 crore to the sugar mills over a period of five years, including a moratorium of one year.

However, the food ministry had received 256 applications, seeking soft loans totalling Rs 12,000 crore.

Of this, 114 applications, seeking loan amounts of Rs 6,000 each, were approved. The remaining didn't qualify as they did not meet their old obligatory levies.

The proposal for financial assistance to these 142 pending ethanol projects, amounting to over Rs 6,000 crore, could be taken up on Wednesday, a government official said.

The Centre will also weigh options of increasing the interest subvention by 6 per cent to set up new distilleries, and boost the production of the existing ones.

The total expenditure on the exchequer for the second set of interest subvention could be around Rs 1,300 crore, the official said.

Currently, only molasses-based distilleries are allowed under the scheme. The entry of standard distilleries, if allowed, will help diversion of more cane during surplus seasons.