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Friday, May 1, 2015

India hikes import on sugar ~ scraps Excise duty on ethanol made from molasses

For most South Indians, day starts with a tumbler of ‘coffee’ – the concoction of coffee beans decoction, milk and …… sugar ~  ‘the sweet thing’.  The English word "sugar" originates from the Arabic and Persian word shakkar, and has its equivalent ‘sharkara’ in Sanskrit ~ it is ‘sakkarai’ in Tamil.

In 2009, the Union Government allowed private traders to import refined sugar at zero which had earlier been  restricted to public sector trading firms such as STC, MMTC; however,   there was  10-lakh-tonne quantitative restriction on import  and the regulation that  duty free import of refined or white sugar to be done only through Electronic Data Inter-change (EDI) ports. 

Sugar mills are mostly seasonal industries with crushing starting from October onwards and peaking in January, generally ending in March or April – and depending upon the availability of supply could run longer also. The Govt. Used to fix the price at which cane can be purchased from the farmers – known as minimum procurement price. Some States also provide transport subsidy for every tonne of excess sugarcane sent for crushing.  A few years ago, in a major shift, the Centre unshackled the then  Rs. 80,000-crore sugar industry by abolishing the monthly release mechanism and doing away with the mills’ obligation to supply levy sugar for subsidised distribution under the Public Distribution System, thus allowing market forces to come into play.

Much water has flown under the bridge and now to help cash-starved sugar mills clear dues worth Rs 21,000 crore to farmers, the government has  hiked import duty on sugar to 40 percent and scrapped the excise duty on ethanol made from molasses.  While India imports very small quantity of sugar, the scrapping of excise duty will give the millers Rs 5 per litre extra on ethanol they produce from sugarcane. The customs duty has been hiked from 25 percent to 40 percent.  The decisions were taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, an official statement said.

According to commodities research, after the hike in the import tax,  the sugar price is expected to  increase by Rs 100 per quintal in the next 3-4 months. In the past one year, prices of sugar plunged nearly 19 per cent to Rs 2,725 per quintal on April 28. The commodity was trading at Rs 3,353 on the same day a year ago. The measures will significantly improve the adverse price sentiments in respect of sugar and would improve the liquidity in the industry, facilitating the clearing up of arrears of cane dues to farmers, the government said in a statement on Wednesday. As on 31 March 2015, the cane dues arrears stood at  Rs 20,099 crore.

The government also slapped the tax on imports of raw sugar that refiners turn into whites, or refined sugar, to sell in world markets.  Equity market experts believe, the rise in import duty will not change the long term fortune of sugar industry.  Among the major sugar stocks on the basis of market capitalisation, the share price of EID Parry (India), Bajaj Hindusthan, Shree Renuka Sugars, Balrampur Chini Mills and Bannari Amman dipped – a few sugar scrips like Bannari Amman surged still.

However, no decision was announced on the demand to create a buffer stock of sugar on government account and industry body ISMA urged the government to quickly decide on its request to buy out 10 per cent of current year's sugar production amounting to 3.5 million tonnes "to help the industry come out of the crisis in the short run and ensure that a major portion of cane price arrears of farmers are cleared before the start of the next sugar season." The government has reduced to six months the period for discharging export obligations under the Advanced Authorisation Scheme for Sugar to prevent possibility of any leakage of such sugar in the domestic market.

It is stated that in the recent times, ex-factory prices of sugar have fallen to Rs 22-24/kg in the country, while the cost of production is over Rs 30/kg. Sugar production of India, the world's second largest producer, is estimated to be higher than the domestic consumption for the fifth year in a row this year.

So sugar too is not sweet for the farmers !

With regards – S. Sampathkumar
30th Apr 2015.


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