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Sugar producers and exporters have strongly protested a downward revision in export subsidy as notified by the government on Tuesday. The Ministry of Agriculture in a notification on Tuesday fixed export subsidy of Rs 2,277 a tonne for April and May, a 32% decline from the previous level of Rs 3,300 a tonne.
Exporters believe that the cut in export subsidy willdiscourage shipment of the sweetener from India. Indian market is currently facingoversupply of around 5 million tonnes of which the government allowed 2 milliontonnes of exports this year. Citing draft of the gazette notification dated February 28, the industry body Indian Sugar Mills Association (ISMA) said, "The incentive shall be Rs 3,300 per tonne for February and March 2014 and thereafter be recalculated every two months after taking into account the average exchange rate of the rupee vis-à-vis the dollar during the seven days immediately preceding April 1, June 1, and August 1, for April-May, June-July and August-September, 2014, respectively."
Therefore, it is very clear from the gazette notification that the rate of incentive would be recalculated every two months on the basis of only the variation in the average exchange rate of the rupee vis-à-vis the dollar in the seven days immediately precedingthe two-month period for which the incentive rate would be recalculated.The rupee-dollar exchange rate at the time of approval of Rs 3,300 a tonne of export subsidy stood at 62.44 (against 1 dollar). Since then, the rupee has appreciated to take exchange rate at 60.32.
Therefore, the rate should have been revised upwards and would have been around Rs 3800 a tonne.Since, there is no criteria prescribed in the gazette notification of February28, there cannot be any other position whatsoever than to either retain theoriginal rate of Rs 3,300 per tonne or increase it. Therefore the downward revision in the export subsidy violates law, said Abinash Verma, Director General, ISMA.
As per the notification, sugar mills entered into contracts with overseas buyers for export and import ofsugar from India, and physically exported substantial quantities of sugar expecting Rs 3,300 per tonne as the incentive on the raw sugar exports. Therefore, such a change in position by the government without any notice or any ground whatsoever, in contravention to the provisions of the gazette notification (law prescribed in this regard) has created massive confusion in the market and a sense of betrayal amongst the millers of the country, he added.
The reduction in export incentives especially when the domestic market is facing oversupply, will further deteriorate conditions of sugar mills which have witnessed fall in selling prices below the cost of production again after a short term recovery in prices in the last few weeks.
"Exports at Rs 2,277 a tonne of incentives will not be viable. While existing contracts will be executethere will be no new contracts signed for sugar exports," said Narendra Murkumbi, managing director of Shree Renuka Sugars. This will further lead to a rise in arrears which currently amount to around Rs 10,000 crore across the country of which Rs 8,000 crore lies with sugar mills in Uttar Pradesh alone. Sugar price moved up in international market by 13.63% since February to trade currently at $481.8 a tonne. In the domestic market, too, spot sugar price jumped by 17.58% to close on Tuesday at Rs 3,377 a quintal as against Rs 2,872 a quintal on January 31.
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