The Indian government has turned down a proposal from Dubai's Al Khaleej Sugar to begin operations in the country, the finance ministry said in a statement on Monday.

The ministry's Foreign Investment Promotion Board (FIPB) did not give any reason for rejecting the proposal of Al Khaleej and did not give details about the proposal.

But a company official, who did not wish to be identified, said the world's biggest refiner wanted to set up trading operations here.

India, which exported a record 5 million tonnes of sugar, mostly raws, in 2007/08, sold most of the sweetener to Al Khaleej, which had been buying from Brazil, the world's top producer.

A sharp drop in domestic output has turned India into a big importer of raw sugar this year and the government has also allowed limited tax-free imports of white, or refined, sugar.

India is estimated to have imported about 1 million tonnes of raws, led by Shree Renuka Sugars Ltd, which bought 625,640 tonnes.

India' imports have also generated good business for international trading firms such as Louis Dreyfus, Cargill and ED & F Man.-Reuters