 "Maharashtra's sugar revenue-sharing formula good for all states")
Earlier this year, the government announced two policy measures to improve the working of the deep-in-the-red sugar sector. The moves were primarily designed to enable sugar factories to clear the longstanding dues of growers and address the unrest in cane-producing centres.
Expectedly, the announcement of subsidised raw sugar exports and interest-free loans to factories had a positive impact on sugar prices. Still, for most factories, production costs remain higher than ex-factory prices of sugar. Undoubtedly, prices would have improved further to the September-October 2012 levels, had the government been steadfast in ensuring effective implementation of the two policies.
Cash flow of sugar companies has been under pressure. As of now, these owe cane farmers about Rs 15,000 crore, including about Rs 10,000 crore in Uttar Pradesh alone. To the dismay of the sector and the growers, the much trumpeted move to offer factories interest-free loans equal to the excise duty actually paid or payable during the last three sugar seasons has not as yet taken off in a meaningful way - 300 of the 530 working factories could make applications for duty-free loans. Loans amounting to about Rs 3,000 crore have been sanctioned, but disbursements remain much lower than the sanctioned amount. For the scheme, the government had estimated sugar factories would avail of Rs 6,600 crore of interest free loans to settle cane bills.
The problem, however, is due to the ongoing elections, the government is virtually on leave. Moreover, banks, smarting under rising non-performing assets, aren't inclined to entertain applications from groups. But why should states, responsible for the crisis in the sector, not be ready to stand guarantee for bank loans to factories? Had they not continuously raised cane prices to court growers without caring for the rates at which sugar was sold in the market and the health of the sector, factories wouldn't be in this sorry situation, said former Isma president Om Prakash Dhanuka.
All sugar-producing states must not, however, be painted with the same brush. This season, in a break with the past, Maharashtra and Karnataka, both recording high production and recovery of sugar from cane, have migrated to sharing the revenue from sales of sugar and its by-products such as electricity and alcohol/ethanol with growers. The revenue-sharing formula recommends itself for other cane-growing regions, too, as it rewards factories and growers equitably, depending on sugar price movements. Moreover, it eliminates the possibility of accumulation of unpaid cane bills. Is it finally dawning on Uttar Pradesh, the country's largest cane-growing state, that the only way to restore the health of the sugar sector lies in walking the path shown by Maharashtra and Karnataka? Perhaps, this will happen when a committee under the chairmanship of Uttar Pradesh chief secretary recommends a formula for the determination of cane prices in the future. "If UP embraces the revenue-sharing formula, expect Bihar and other northern states to fall in line," says Dhanuka.
In the meantime, the industry, which has responded enthusiastically to exporting raw sugar, aided by subsidy of Rs 3,300 a tonne, has to contend with the formula of recalibration of the subsidy amount every two months, based on the rupee's exchange rate and world prices of raws. This will not disturb exports, provided the subsidy review is expeditious. However, this wasn't the case when subsidy for April-May came up for review. To partially relieve the industry of a massive inventory burden, the compulsion to export four million tonnes (mt) of sugar this season and the next is understandable.
ISMA continues to press the government to raise customs duty to 40 per cent from 15 per cent so that merchants aren't tempted to import sugar to avail of any price improvements here. As of March-end, India exported 1.75 mt of sugar, including 250,000 tonnes on account of advance licences. Net exports from domestic production stood at 1.5 mt. The industry should be enabled to export the remaining 500,000 tonnes for this season quickly.
Expectedly, the announcement of subsidised raw sugar exports and interest-free loans to factories had a positive impact on sugar prices. Still, for most factories, production costs remain higher than ex-factory prices of sugar. Undoubtedly, prices would have improved further to the September-October 2012 levels, had the government been steadfast in ensuring effective implementation of the two policies.
| BITTERSWEET |
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Cash flow of sugar companies has been under pressure. As of now, these owe cane farmers about Rs 15,000 crore, including about Rs 10,000 crore in Uttar Pradesh alone. To the dismay of the sector and the growers, the much trumpeted move to offer factories interest-free loans equal to the excise duty actually paid or payable during the last three sugar seasons has not as yet taken off in a meaningful way - 300 of the 530 working factories could make applications for duty-free loans. Loans amounting to about Rs 3,000 crore have been sanctioned, but disbursements remain much lower than the sanctioned amount. For the scheme, the government had estimated sugar factories would avail of Rs 6,600 crore of interest free loans to settle cane bills.
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A bank official said the wide gap between what is proposed in the scheme and the sanctioned amount was because loan conditions related to factory viability and cash flow in the next five years were such that a large number of units weren't in a position to apply. The industry, however, contends when the government had to make a similar intervention in 2007, loans were virtually on-tap. In any case, if the state governments concerned come forward to offer guarantees for weak factories, many more units will be entitled to loans. The Indian Sugar Mills Association (Isma) has made a representation to the government for relaxation of some difficult loan conditions. Finance Minister P Chidambaram has promised to revisit the loan guidelines, based on the actual difficulties mills face availing of interest-free credit.
The problem, however, is due to the ongoing elections, the government is virtually on leave. Moreover, banks, smarting under rising non-performing assets, aren't inclined to entertain applications from groups. But why should states, responsible for the crisis in the sector, not be ready to stand guarantee for bank loans to factories? Had they not continuously raised cane prices to court growers without caring for the rates at which sugar was sold in the market and the health of the sector, factories wouldn't be in this sorry situation, said former Isma president Om Prakash Dhanuka.
All sugar-producing states must not, however, be painted with the same brush. This season, in a break with the past, Maharashtra and Karnataka, both recording high production and recovery of sugar from cane, have migrated to sharing the revenue from sales of sugar and its by-products such as electricity and alcohol/ethanol with growers. The revenue-sharing formula recommends itself for other cane-growing regions, too, as it rewards factories and growers equitably, depending on sugar price movements. Moreover, it eliminates the possibility of accumulation of unpaid cane bills. Is it finally dawning on Uttar Pradesh, the country's largest cane-growing state, that the only way to restore the health of the sugar sector lies in walking the path shown by Maharashtra and Karnataka? Perhaps, this will happen when a committee under the chairmanship of Uttar Pradesh chief secretary recommends a formula for the determination of cane prices in the future. "If UP embraces the revenue-sharing formula, expect Bihar and other northern states to fall in line," says Dhanuka.
In the meantime, the industry, which has responded enthusiastically to exporting raw sugar, aided by subsidy of Rs 3,300 a tonne, has to contend with the formula of recalibration of the subsidy amount every two months, based on the rupee's exchange rate and world prices of raws. This will not disturb exports, provided the subsidy review is expeditious. However, this wasn't the case when subsidy for April-May came up for review. To partially relieve the industry of a massive inventory burden, the compulsion to export four million tonnes (mt) of sugar this season and the next is understandable.
ISMA continues to press the government to raise customs duty to 40 per cent from 15 per cent so that merchants aren't tempted to import sugar to avail of any price improvements here. As of March-end, India exported 1.75 mt of sugar, including 250,000 tonnes on account of advance licences. Net exports from domestic production stood at 1.5 mt. The industry should be enabled to export the remaining 500,000 tonnes for this season quickly.