* Overseas purchases nearly 8 pct cheaper despite duty

* India charges 40-percent tax on sugar imports

* Overseas cargoes could drag on local prices

* Mills could struggle to pay cane growers as prices fall

By Rajendra Jadhav

MUMBAI, June 28 (Reuters) - World No.1 sugar consumer India could be set to ramp up imports of the sweetener as a sharp drop in international prices and a stronger rupee make overseas purchases viable despite stiff duty charges, industry officials said.

Increased appetite from India, which typically churns out its own sugar to use in everything from fizzy drinks to sticky snacks, could support benchmark global prices that have been trading near their lowest in 16 months.

However, it would pressure Indian prices, potentially making it difficult for mills that process sugar cane to pay farmers rates stipulated by the government.

“At the current (international) price level, refiners can import sugar for domestic consumption and make profit,” said Rohit Pawar, chief executive of Baramati Agro, which operates sugar mills in the western state of Maharashtra.

Dealers estimate the cost of sweetener produced from raw sugar shipped in from abroad, including the 40-percent import duty, is around 32,000 rupees ($496) per tonne, around 8 percent cheaper than local sugar at 34,600 rupees.

A stronger rupee also makes the dollar-denominated price tag on overseas cargoes more affordable for Indian mills. The rupee has risen more than 5 percent against the greenback so far this year.

That comes after the government in April allowed the duty-free import of 500,000 tonnes of sugar to keep a lid on prices after local production fell by a fifth from a year ago.

“Right now refiners are processing duty-free imports. From the next month they could start importing (duty-paid) sugar for local consumption,” said a sugar miller based at Kolhapur in Maharashtra. He declined to be identified as he was not authorised to speak with media.

Traders said predicting the scale of potential imports was tricky.

“It is difficult to estimate how much Indian refiners will import ... (while) paying tax,” said a New Delhi-based dealer with a global trading firm.

“The market has not anticipated additional imports. Once imports start, local prices could crash and could make larger imports unviable.”

Local sugar prices have already fallen to their lowest level in three months in the wake of the duty-free imports and due to cooler summer than usual, which curbed appetite for cold treats such as ice cream.

“There is a need to raise import duty on sugar to 70 percent. Otherwise imports will pull down prices further and make it impossible for mills to pay the government fixed cane price,” said Baramati Agro’s Pawar.

The South Asian country has increased by nearly 11 percent the price sugar mills must pay cane growers in the next sugar season beginning in October.

“Mills cannot pay higher prices for cane unless they manage to sell sugar at higher prices,” said Sanjeev Babar, managing director of the Maharashtra State Co-operative Sugar Factories Federation.

“There is need to stop imports as next season we will be self-sufficient in sugar production.”

India’s 2017/18 sugar output is expected to jump a quarter from the previous year to 25 million tonnes. ($1 = 64.5200 Indian rupees) (Reporting by Rajendra Jadhav; Editing by Joseph Radford)