Food Ministry starts review of raw sugar subsidy amidst WTO pressure

The department of food has started a review of the Rs 3,300 crore raw sugar subsidy scheme announced towards end of last calendar year, albeit maintaining that the scheme will continue for remaining months till the new cabinet comes in place.

According to sources close to the development, the review is aimed at reworking the amount of subsidy downside based on new rates of  benchmarks - exchange rate tariff and international prices which has substantially changed since the time when the scheme was announced. However, till date the final notification for the scheme has not been released.

Sources said that the scheme can at least run for two months – April and May 2014 of which more than 20 days of April 2014 are already over. The review follows strong objection raised by the members of the World Trade Organization (WTO) stating that this will distort global trade as India is the third largest exporter of sugar in the world.  The subsidy was given for promoting raw sugar export by Indian millers.

Meanwhile, the government of India has decided to strongly defend its stance on the raw sugar exports on the ground that the export subsidy is not intended for exporters or industry but for farming community or cane millers.  According to sources close to the development, the  subsidy to be given for export of raw sugar will be passed on to the cane growers for  diverting  the  sugarcane produce from processing white sugar to raw sugar which is not the usual practice in India. Explaining this, sources said, usually in India there is no demand or consumption of raw sugar and the entire cane is processed for sugar or jaggery or mollases etc. On the other hand, there is surplus stock of sugar in the country which is why the sugarcane farmers are not in the position to get proper remuneration  as the cost of production is higher than the market price.

Therefore a conscious decision has been taken by the government to divert the domestic production to the export market where the demand is for raw sugar and not processed sugar, said sources.  The subsidy thus is intended for helping the millers/ farmers to divert manufacturing of sugar to raw sugar. Thus the concern of the world community is not correct in stating that  the raw sugar subsidy will distort the global prices as they are not intended for the exporters but for the cane millers and farmers.   

Last year, the Cabinet Committee on Economic Affairs (CCEA) has also approved Rs 6,600 crore interest-free loans to the sugar industry with interest subvention of 12% to be borne by the Sugar Development Fund.

The loans will be provided by banks to sugar mills exclusively for making payments to sugarcane farmers, including arrears. The loans are equivalent to the excise duty paid by the mills in the past three years and   the mills have to repay the loans in five years. These mills could avail of a moratorium on repayment for the first two years. The decision was taken to help the sugar industry tide over the cash crunch.