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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    Sri Lankan President Sirisena’s India visit would help boost trade, relations
    Apart from regular trade and industry, one area that businessmen from both nations can actively take part covers the gem and jewellery trade.  Sri Lanka is known for its gems while India is already an established leader in manufacture and export of gold jewellery
     
    In his first overseas visit, after becoming President Maithripala Sirisena of Sri Lanka and Prime Minister Narendra Modi have reaffirmed their mutual trust and respect and by extending support for each other.  In this short visit, and in their presence, both the nations witnessed the signing of three agreements: one on agricultural cooperation, memorandum of understanding on Nalanda University and on cultural cooperation.
     
    And the icing of the cake has come in the form of Indo-Sri Lankan Civil Nuclear Co-operation Agreement, the first nuclear partnership for Sri Lanka with any country, and has brought both the countries closer together, as never before!  This Nuclear agreement, at the moment, covers the cooperation in transfer of exchange of knowledge, expertise, training in peaceful uses of nuclear energy including use of radio-isotopes, nuclear safety, radiation safety, security, disposal of radioactive waste, nuclear and radiological disaster mitigation and environmental protection.
     
    This has strengthened the mutual trust and respect for each other, and both leaders have agreed to expand the defence and strategic cooperation to include Maldives, so as to bring about a "trilateral format" effect.  Prime Minister Modi is planning a reciprocal visit, sometimes in March, which is likely to include Maldives, but the dates have not yet been announced.
     
    Apart from close trade relations that have increased in the recent years, India has also begun its involvement in the reconstruction activities envisaged in northern Sri Lanka.  The project, involving the construction of some 50,000 houses for Tamils, who got displaced during the unfortunate civil war that lasted over 30 years, and this will naturally include all other related infrastructural activities in the region.
     
    President Sirisena, accompanied by his wife, will also plan to stop over at Tirupathi to visit the Balaji temple before returning back to Colombo.  He is also scheduled to visit China to meet President Xi Jinping, but the dates have not been announced.
     
    There are couple of issues that would need the attention of both the leaders. The first major issue relates to the 100,000 odd Sri Lankan Tamil refugees who are presently in India, and mostly in Tamil Nadu.  They have to be repatriated back to Sri Lanka to start their lives afresh and actively get involved in the reconstruction activity in the north.  The second covers the frequent conflict of interests, by fishermen, on both sides.  Fortunately, both the leaders have felt that this problem needs to be solved by a constructive and humanitarian approach by mutual consent of the fishermen themselves, as it involves their day to day livelihood.
     
    Apart from regular trade and industry, one area that businessmen from both nations can actively take part covers the Gem and Jewellery trade.  Sri Lanka is known for its gems; India is already an established leader in manufacture and export of gold jewellery.
     
    A workable combination of both would bring wonders to the hard working people involved in this trade.  Another area that may be interest to both is the ship building and repair industry where the opportunities are large.
     
    Both nations offer good opportunities for tourism industry involving historical sites, religious centres for pilgrimage and proximity to each other. 
     
    (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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    Will the Budget waive export duty on iron ore and impose duty on steel imports?

    Both the iron ore mining and steel industries are at cross roads. It is hoped that the Union Budget will provide the much needed relief to both industries

     

    For months now, the iron ore exporters have been seeking help from the Indian government to assist them in reviving mining industry. It may be remembered that, due to the Supreme Court ruling and subsequent relaxation, there has been some activity in this industry, though, press reports show that, as much as 12 million tonnes of iron ore, are lying in both Odisha and Goa ports for shipment.  In the meantime, the international price has taken a beating and, coupled with the economic slowdown and reduced off take by China, the iron ore prices have come down to about $61 a tonne.
     
    The Federation of Indian Mineral Industries (FIMI) has presented a memorandum, as reported in the press, that the government ought to waive the export duty on iron ore and actually impose duty on import of steel and pellets to 30%.  Both these moves will bring respite to the industry which has been suffering for long, for a variety of reasons.
    It may be noted that there was export duty on iron ore in 2008-09.  This was incrementally increased from 5% in 2009-10 to reach 30% by December 2011. This increase has made exports unviable, and the Chinese imports have practically stopped. Iron ore exports, which saw a high of 117.37 million tonnes in 2009-10 has gone down to touch 14.42 million tonnes by 2013-14.
     
    Due to fall in the international market price level, the state-owned NMDC (National Minerals Development Corporation) has also been constantly reviewing its prices, and recently brought down the price of lumps to Rs4,200 and Rs3,060 for fines per tonne. As mentioned above, the international price touched a low of $61, the lowest level in the last five years! 
     
    The domestic steel makers have taken advantage of this fall to import their needs and this has reached 6.51 million tonnes in the last nine months. The depreciated value of the Russian rouble against the US dollar has also made it cheaper to import steel from Russia!
     
    Because of the free trade agreement with Japan and South Korea, steel imports from these two countries have also increased, and the domestic industry has been demanding that the Government ought to impose an increased duty structure, for certain types of steel products, from the current 7.5% to 10% at least!  
     
    There are also allegations that poor quality steel is being imported into the country and this needs to be stopped by strict quality control measures.
     
    Domestic steel makers continue to prefer the use of lumps, as these have greater iron content and have not, so far, obtained the technology to use low grade fines with high grade lumps, imported or indigenous, to make steel. China with its state of art technology has literally mastered steel manufacturing from low grade fines with high grade lumps!  It may be remembered that China has been the biggest importer of Goa fine ore and mixed them with high grade ores from both Australia and Brazil to make the steel.
     
    The Iron Ore Exporters' Association, in the meantime, has pleaded with the government to waive the export duty on iron ore, 8 million tonnes of which are lying in Goa and 4 million tonnes in Odisha ports, so that they can monetise the ore and recover their cost and meet their obligations to their bankers.  
     
    Both the iron ore mining and steel industries are at cross roads. It is hoped that the Budget will provide the much needed relief to both. It is surprising that leading exporters of Goa fine ores have not given adequate thought to the realistic and practical idea of collaborating with the Chinese to put up a joint venture in Goa to use the ore from the state and high grade ores from indigenous or imported sources. They could have killed two birds in one stone!
     
    There is ample scope and time for ‘Make in India’ to happen, right here, in this industry! 
     
    (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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