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Sugar millers to get sweetner as govt ups import duty to 40%

The industry has suffered due to low prices and the decision of state govts to steeply raise cane prices for political benefits in some years.

, ET Bureau|
Jun 24, 2014, 04.00 AM IST

Commodity Summary

NEW DELHI: Sugar prices rose to a six-month high as the Centre promised higher import protection and offered other sops to the industry in return of an assurance that mills will release cane farmers’ dues of Rs 11,000 crore, a move that analysts said amounts to making consumers pay for sugar barons’ debts.

Shares of top sugar mills jumped after the Centre agreed to raise import duty to 40% from 15%. The government also decided to continue the subsidy of Rs 3,300 per tonne on sugar exports until September and promised to increase the blending of ethanol in petrol. It also approved additional interest-free loans for the sugar mills up to Rs 4,400 crore. In December last year, the Centre had approved Rs 6,600 crore interestfree loans for the sugar industry to pay off mounting cane arrears.

The industry has suffered due to low prices and the decision of state governments to steeply raise cane prices for political benefits in some years.

Investors cheered the decision, sending shares of Bajaj Hindusthan and Shree Renuka Sugars up about 10% while Dhampur Sugar Mills climbed 8.2% and Balrampur Chini Mills rose nearly 7%. Food Minister Ram Vilas Paswan said the government would implement these measures only after sugar mills give in writing that they would pay arrears to farmers, totalling as much as Rs 11,000 crore.

“We are ready to execute these reforms as soon as possible. If the industry gives in writing today, we will put in execution whatever we have announced by today. It all depends on the industry now, by when can they pay the farmers, they will receive the aid accordingly,” Paswan said.

The decision to accept the demands of the industry, which says it is in a financial crisis, was taken at a meeting of the ministries of food and agriculture, oil & natural gas, commerce and transport.

It was also attended by the Cabinet secretary and representatives from the top two sugar-producing states, Uttar Pradesh and Maharashtra.

“The food secretary would call for a meeting soon with the representatives of the sugar industry wherein they would have to give a written assurance that they would clear the outstanding dues to cane farmers,” said Paswan. The previous government had announced a bailout package for the sugar industry which included an export subsidy of Rs 3,300 per tonne for the shipment of up to 4 million tonnes of raw sugar.

It had also recommended 10% ethanol blending, up from current 5%. The sugar industry, which supplies ethanol to oil marketing companies, has been pushing for an increase in ethanol blending in petrol to 15%. ET reported last week that the ministry of petroleum and natural gas was looking to cap ethanol blending at 10%.The sugar industry welcomed the decision of the government, although analysts were sceptical.

“These key decisions would benefit the industry and improve the liquidity of the sugar mills, which would help the industry to clear the pending payments to the cane farmers at the earliest,” said Abinash Verma, directorgeneral, Indian Sugar Mills Association (ISMA), the apex sugar industry representative body. Delhi-based agri-commodities analyst Tejinder Narang questioned the decision saying it was inflationary.

“How can the government support an inflationary food policy? Last week, the same government was fighting food inflation.” The sugar industry has a different perspective. “A 40% duty on sugar import would ensure that no sugar from other nations makes its way into the Indian markets, as we already have about 20-25 lakh tonne of surplus sugar with us. This would definitely improve the market sentiment, domestic sugar prices, and better buying by traders and wholesalers,” said Verma.

Food policy analyst Devinder Sharma said curbing imports would harm the domestic market. “Why shouldn’t sugar industry be globally competitive? Why deprive consumers of cheap imported sugar? Will fiscal deficit not go up when the sugar industry is given a Rs 4,400-crore subsidy for export?” asked Sharma.

Sugar price in the spot market jumped to a month high in Kolhapur mandi at Rs 31.28 per kg while the price in Kanpur mandi touched Rs 33.33 per kg, a six-month high.
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