Shares of sugar producing companies rose on Friday, a day after the government increased the minimum selling price (MSP) of sugar by Rs 2 per kg to Rs 31. The decision will help the liquidity of the cash-strapped millers to clear their mounting cane arrears of around Rs 20,000 crore.

MSP is the minimum rate below which the mills cannot sell sugar in the open market to wholesalers and bulk consumers like beverage and biscuit makers.

Arrears of sugarcane farmers stood at around Rs. 20,000 crore as of January-end, according to industry body ISMA. "We have increased the minimum selling price of sugar from Rs. 29 per kg to Rs. 31 per kg. This will help millers to make the payment to sugarcane growers," Food Minister Ram Paswan told PTI on Thursday.

The hike in MSP was in the view of rising arrears to farmers, Paswan said that a mechanism will be put in place to ensure that the benefit given to the industry is passed on to the sugarcane farmers.

In Friday morning trade, shares of Balrampur Chini Mills climbed over 4 percent to Rs 122.40, Avadh Sugar rose 4.5 percent to Rs 383.90 per share, Mawana Sugars shares increased over 8 percent to Rs 44.25 apiece and Dhampur Sugar Mills shares gained close to 3 percent to Rs 197.60 per share.