Export subsidy for raw sugar is small relief, but what about arrears and ethanol blending?

It is time that some major relief provisions are made in the ensuing Budget for the sugar industry, which is in the doldrums for long

 

At long last, after months of delay, the Cabinet Committee on Economic Affairs (CCEA) has approved the extension of subsidy for raw sugar export to Rs4,000 per tonne, for the sugar crop year, ending in September 2015, for export of 1.4 million tonnes (mt), against last year's subsidy of Rs3,371, which ended in September 2014. Why should the Indian government take four months to decide this issue when they already knew the plight of farmers and the huge stocks on hand? This needs to be investigated.
 
Abhinash Verma, the Director General of Indian Sugar Mills Association (ISMA) is reported to have said that this revision has been long awaited and expects out the huge stocks, at least 1.4 million tonnes would go for export, and bring a small relief to the mills. The current season may bring about some 26 million tonnes of sugar, as against the demand pattern of about 24 to 25 million, leaving an excess to add to our overflowing stocks.  Last year's carry forward of 2.5 million tonnes needs to be cleared too.
 
As against this, the farmers arrears, estimated at Rs12,300 crore will increase to Rs13,000 crore, if exports are not done quickly. The industry was able to export only 700,000 tones and tend to produce raw sugar only after finalising the export contract. It is reported in the press that as at the end of January this year, the raw sugar production has been estimated at 64,000 tonnes due to the inordinate delay, of nearly five months, in deciding the export subsidy of Rs4,000 per tonne, and there is doubt if they can manage to increase it to effect shipment of 1.4 mt now allowed.  
 
In fact, in order to bring relief and to ensure that farmers' dues are settled, overdrafts with bankers are reduced by millers, it would be prudent of the government to open up the raw sugar export, instead of limiting it to 1.4 mt, as the first step. 
 
Second, this the time for the government to take a serious look at this industry, which has too many issues to tackle. The major issue would be to completely abolish the SAP (State Advisory Price) that has been in vogue in Uttar Pradesh (UP), which is fixed at Rs2,800 and which is higher than the Centrally administered FRP (Fair and Remunerative Price) of Rs2,660 per quintal.  UP has also a low recovery rate of 9.26%, as against, for example, Maharashtra, where the cane prices are around Rs2,550 per quintal with a recovery of 11.4%.
 
Thirdly, as mentioned, reportedly by Minister Ram Vilas Paswan, several state governments were imposing a levy on molasses and they were also regulating the movement of non-levy molasses, while some others were imposing import-export duty on ethanol arrival and departures from their states!  On the top of this, some state governments apply octroi on ethanol entry into their municipal limits! To compound the misery, inter-state movement of ethanol needs no objection certificates from State Excise Authorities! 
 
It is time therefore some major relief provisions are made in the ensuing Budget.  It would be prudent if the following steps are considered seriously for implementation:
 
a) Application of a linkage formula, as recommended by the Rangarajan committee, with modifications, if necessary
 
b) There should be only one FRP applicable and abolishing the SAP as practiced in UP 
 
c) The Oil Marketing Companies will have to blend 5% ethanol to petrol effectively from April otherwise, they will not get government subsidy at all
 
d) Sugar mills should be permitted to sell 25% of their stocks in the free market
 
e) Export subsidy should be open to a higher limit. The quota for export should be increased to 2.5 mt
 
f)  No State government should impose any levy/octroi or impose any restriction on ethanol or movement of molasses from one state to another
 
g) farmers’ arrears will have to be paid directly by the Millers' bankers against submission of delivery documents, received at the gate, after weighing-in of the cane supplied
 
h) the excise inspectors at the millers’ gates should give the inflow details to the bankers directly under advice to the millers, who will sign the documents, thus automatically permitting the payment to the farmers (or similar process of documentation) 
 
i)  bankers should be advised to help restructure the loan needs of millers by mutual discussions
 
Stringent steps are needed to bring complete relief to this industry which has been in the doldrums for long.
 
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
 
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