The governments willingness to continue with duty-free import of sugar is as surprising as it is worrying. Free sugar imports put the domestic industry on an unequal footing vis-à-vis international competition for several reasons. Indian sugar is subjected to a plethora of duties and curbs on sales and storage, besides (most importantly) the mandatory levy at reduced prices. Imported sugar is free from all such encumbrances. This amounts to discriminating against domestic industry by denying it a level playing field. There would have been some justification for such drastic action if there was a terrible shortage of sugar and its prices were threatening to go through the roof. Neither is the case. Though domestic sugar output is likely to fall this year, it will still be sufficient to meet consumption needs and leave a healthy closing stock, enough to take care of at least the first quarter of the next sugar year. This comfortable availability position has tended to keep both wholesale and retail prices
subdued.
The free imports come at a particularly inopportune time for the domestic industry. It made good profits in 1996-97 but its margins are being squeezed right now. Consequently, it faces a liquidity crunch and cane price arrears have started mounting. If this trend continues, the industry can be forced to reduce its intake of sugarcane, to the detriment of millions of cane growers. This is bound to accentuate the traditional cycle of periodic surge and drop in sugar production. As it is already in its waning phase, every effort should be made to either reduce the impact of the cycle or even break it, rather than accentuate it.
Interestingly, the bulk of the sugar imports are sourced not from the traditional players in the global sugar bazaar but from the European Union, where sugar exports are heavily subsidised. While earlier contracts were made by these sugar surplus countries at almost half their domestic cost of production, the latest deals are said to have taken place at a still lower price because of the sudden depression in the international sugar market in the wake of the East Asian currency crisis. This may not qualify for proceedings under the anti-dumping law as the local sugar industry may not be able to show significant damage to its interests a vital requirement for such action under the World Trade Organisation norms. But there is a fairness issue in terms of fighting on a level playing field, and this is what the government should look at.
Since it is necessary to keep the import window open to offset any impact of a drop in production in terms of a rise in prices, the government can create a level playing field for the domestic sugar industry by either putting a suitable countervailing duty on the imported sugar or convincing the states to levy sales tax on imported sugar, as is done on domestic stocks. It could conceivably take other measures within the ambit of the WTO norms to prune the freedom granted to imported sugar in terms of sales, dispatches and stocking but much the better option would be to free the domestic sugar industry from such controls and restrictions.