New Delhi: The Union government will remove a 60% import duty on up to 1 million tonnes of white sugar for the next four months, government and trade sources said, and will also drop a requirement that raw sugar only be imported for re-export.
The Cabinet decision comes two months after the world’s biggest consumer of the sweetener waived tariffs on raw sugar imports, a response to a smaller-than-expected domestic crop.
“It has been decided that both white sugar imports and waiving the export obligation of imports of raw sugar will remain in vogue till 31 July,” a senior trade official told Reuters, requesting anonymity because the information isn’t public.
The measures, which could boost global prices in a market already in a steep deficit, require formal approval from the Election Commission, which guards against populist moves meant to win votes.
India goes to polls this month and elections will end next month.
Approval is likely, and could come as soon as later on Friday, a government source said, while traders said the commission’s go ahead was a formality.
“The Cabinet has cleared the proposal on allowing tax free white sugar imports. In all probability, we expect the Election Commission will give its nod soon,” Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd, said.
A government spokeswoman declined to comment, saying the Cabinet decision would be made public on Monday.
Three state-run trading firms and a farmers’ cooperative -- the State Trading Corp of India Ltd, MMTC , PEC and National Agriculture Cooperative Marketing Federation of India (NAFED) -- would be allowed to import up to one million tonnes of white sugar tax-free, a top government official said.
That’s less than the 2 million tonnes that an industry official had earlier suggested, but enough to make waves in the world sugar market, already unnerved by India’s swing from exporter to importer.
Analysts have in the last month been hiking their forecasts for the 2008-09 sugar deficit, with Morgan Stanley raising its expected shortfall to 7.9 million tonnes from 1.8 million, and F.O. Licht to 4.4 million tonnes from 2 million.
Sugar futures markets in New York and London are closed for a holiday, but on Thursday London May white sugar rose $8.60 to $403 ahead of the India announcement.
Imports not a given
Many analysts and traders had written off the idea that India would open up to white sugar imports after domestic prices began to retreat from highs earlier this year, and government officials had also began to downplay the idea in recent weeks.
But prices climbed recently, rising 7% over the last 11 sessions, after a top industry official said the domestic crop would fall to 14.2 million tonnes in 2008-09, down 8.4% from previous estimates.
This is well short of output of 26.5 million tonnes last year and also of estimated consumption of 23.5 million, but even with the shortfall, traders say it will be difficult for state-run firms to import whites without government support.
“They will not be able to make even a little money. Why Will they import? Subsidy is a must for them,” said Mukesh Kuwadia, secretary general of the Bombay Sugar Merchants Association Ltd.
Kuwadia said the landed cost of imported white sugar would be Rs2,150 per 100 kg, almost equal to the ex-mill price, leaving no scope for firms to earn even a small profit.
A senior official with a leading sugar firm said the decision would cap rising sugar prices but not reverse the recent gains.
“In terms of psychological impact, yes there will be some impact. Prices will be capped. That is all I expect,” he said.
Traders from the western state of Maharashtra, the top producer, say prices in the physical markets have fallen by about Rs15 rupees 100 kg on Friday, from Rs2,250 per 100 kg on Thursday.
Trade officials expect raw sugar imports to rise.
Indian mills have so far contracted to import about one million tonnes of raws and could buy another 500,000-700,000 tonnes before the end of the season in September, said Kuwadia.
“Raw sugar imports are anyway favoured as it is cheaper at $270-$280 per tonne than white sugar which is available at $360-$390 per tonne,” he said.