The government has come up with a major incentive package for the beleaguered sugar industry, but has held back a formal announcement subject to clearance from the Election Commission (EC).
Uttar Pradesh is going to polls early next month and under the EC’s norms, no major policy announcement that could be construed as seeking to manipulate the voter, can be made currently. The state is one of the largest sugar producers in the country.
The incentive package includes removal of export ceiling, which is currently at 7.5 lakh tonne, a buffer stock of two million tonne and export subsidy of Rs1,350 per tonne for sugar mills located in coastal India and Rs1,450 for units in the northern region. Neither export subsidy nor buffer stock have been offered in recent years.
“All these moves are subject to clearance by the election commission and if the election commission has any objection to implementing these then we will keep these decisions in abeyance for UP for some time,” said a top government official in food ministry. A formal announcement is expected today.
He also added that the cabinet committee on economic affairs (CCEA) has cleared these incentives for a year. “However, we still have to get a clarity on whether these hold for the financial year or sugar year (October-September),” the official added.
Sugar prices in the country have come down from Rs1,800-1,900 per quintal, four to five months back, to Rs1,350-1,450 per quintal. Exports have been proving to be equally unviable as the international price of sugar has come down from $450 (Rs19,350) a tonne last year, to $330 a tonne.
According to Ravi Gupta, president of Bajaj Hindusthan’s sugar and alcohol business, the subsidy shall now lead to an expending of surplus by way of 2 million tonnes through export and 2 million tonnes of buffer stock. Hence, with this step, 4 million tonnes are taken out of the market. “Indian mills should avail the maximum benefit of this subsidy and move fast to export, prior to the arrival of Brazilian sugar post May-June,” he added.
Sugar prices have been falling with bumper crops year after year. This year, sugar output was 25 million tonnes and is projected to rise to 26 million tonnes. Sugar consumption is estimated at 19 million tonnes.
According to Ajay Shriram, chairman, DCM Shriram Consolidated Ltd, creation of a buffer will give sugar companies the much needed liquidity which will help them make payment for cane, which in turn will help farmers. “I am not sure whether creation of a buffer will raise the price of sugar but will definitely give liquidity to sugar companies,” Shriram said.
He explained, when sugar prices come down, the value of stocks of sugar companies go down and banks refrain from extending money to sugar companies. He added that with the creation of a buffer, the government will pay to the industry the carrying cost for holding the stocks thereby injecting liquidity.
According to S.L. Jain, director general, the Indian Sugar Mills Association, the government’s move to subsidise export should have come much earlier as there was a ban on sugar export for the entire second half of 2006.