CCEA defers sugar export subsidy

A committee comprising of secretaries from food, agriculture and finance will now rework subsidy

The Cabinet Committee on Economic Affairs (CCEA) on Tuesday deferred a decision to grant cash subsidy for export of four million tonnes of raw sugar owing to differences over the quantum of relief.

Officials in the know said the food ministry has favoured a subsidy of Rs 2,000 a tonne costing around Rs 800 crore, which would be adjusted from the Sugar Development Fund (SDF) over a period of two years.

However, the agriculture ministry sought a Rs 3,500-a-tonne subsidy to make exports viable as international raw sugar prices were lower than the domestic production cost of Rs 2,650 a tonne. The higher subsidy would cost the exchequer around Rs 1,400 crore.

“A high-level committee comprising secretaries from the department of food, agriculture and finance would now rework the exact quantum of subsidy and bring the proposal back to the CCEA,” said a senior government official who participated in the discussions.

The department of commerce had expressed concerns whether the export subsidy was World Trade Organization-compatible. ”Commerce Minister Anand Sharma was not present at the meeting, which is also why the CCEA deferred the decision,” the official noted.

The subsidy for export was part of the relief package finalized by a high-powered Informal Group of Ministers (iGoM) chaired by Agriculture Minister Sharad Pawar.

In 2007-08, too government had given subsidy of Rs 1,450 per tonne to export six million tonnes of sugar. The current incentive is being worked on the same lines, sources said.      

The industry body Indian Sugar Mills Association (ISMA) has also suggested an incentive of Rs 3,500 per tonne on raw sugar export in view of weak global prices.      

India, the world's second biggest sugar producer manufactures very small quantity of raw sugar. It largely consumes sugar in white form.

Last month, the cabinet committee on economic affairs (CCEA) cleared a proposal to allow mills access Rs 6,600 crore of interest-free loans. The interest-free loans will be disbursed to mills through a separate bank account to ensure its strict monitoring.

The entire interest burden estimated at Rs 2,750 crore over the next five years will be borne by the government from the Sugar Development Fund (SDF). The Rs 80,000-crore sugar industry has been facing a cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years.

Apart from interest-free loans and incentive to export raw sugar, the government is also toying with the idea of setting up a buffer stock and doubling of ethanol blending in petrol to 10 per cent.