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The government on Monday announced several measures to bail out the ailing sugar industry: While the rate of import duty was more than doubled from 15 per cent to 40 per cent, the mandatory ethanol-blending cap was increased from five per cent to 10 per cent. The notifications in this regard will be issued shortly after the industry assures of clearing farmers’ Rs 11,000-crore dues at the earliest.
These decisions were taken on Monday at a high-level meeting in the national capital of representatives from the ministries of commerce, agriculture and food, also attended by Principal Secretary to the Prime Minister Nripendra Misra and Cabinet Secretary Ajit Seth.
After the meeting, Union Food Minister Ram Vilas Paswan said: “We have taken four key decisions. Besides an increase in import duty and the mandatory ethanol-blending cap, we have extended the interest-free loans given against excise duty paid by sugar mills to five years (from three years). Apart from that, the government has also decided to extend the sugar export subsidy until September 2014.”
The minister has linked implementation with clearance of farmers’ dues, but industry captains have welcomed the decisions. Mills are set to benefit if the complete package comes into force.
Stocks of sugar companies rallied around 10 per cent on the BSE on Monday. Sugar prices in spot and futures markets also rose on Monday. In Mumbai’s physical market, the price of M30 grade sugar rose 2.5 per cent to Rs 3,308 a quintal, while NCDEX futures shot up 1.8 per cent to Rs 3,099.
“Sugar prices will increase by a few rupees per kg after implementation of these measures. In fact, the purpose of these measures gets defeated if the price does not rise,” said Shree Renuka Sugars Managing Director Narendra Murkumbi.
Paswan told reporters: “These decisions will be subject to mills giving a guarantee that they will clear Rs 11,000 crore of sugarcane arrears at the earliest... If they give an assurance today, we will announce incentives today itself.” Some of these decisions will require the Cabinet’s approval, while the others will be notified by ministries concerned, Paswan added.
Among the ministers present at Monday’s meeting apart from Paswan were Road Transport Minister Nitin Gadkari, Commerce Minister Nirmala Sitharaman, Petroleum Minister Dharmendra Pradhan, Women & Child Development Minister Maneka Gandhi and Micro Small and Medium Enterprises Minister Kalraj Mishra.
Welcoming the move, Indian Sugar Mills Association (ISMA) Director-General Abinash Verma said: “These decisions will benefit the industry and improve sugar mills’ liquidity, helping the sector clear pending payments to cane farmers. The 10 per cent ethanol-blending limit will save up to $1.7 billion of forex which will help improve the country’s current account deficit.”
Of the estimated Rs 11,000 crore of cane arrears across India, a massive Rs 7,500 crore is accounted for by Uttar Pradesh alone, while Tamil Nadu and Karnataka account for a combined Rs 2,000 crore and Maharashtra for only Rs 175 crore. According to Maharashtra State Federation of Cooperative Sugar Factories Managing Director Sanjiv Babar, sugar mills in Maharashtra managed to clear dues with earlier interest-free loans — equivalent to the year’s excise duty — provided by the government. But these measures would certainly help increase cash flows for mills, which have been selling sugar below production cost.
“While the average cost of producing sugar is about Rs 35 a kg, mills have been selling the sweetener at Rs 30.5-31 a kg. The industry requires cash flows to clear the arrears. Today’s measures will certainly help increase the flows. Additionally, sugar mills will be able to use better cane varieties to boost yields. At present, yields in states like Uttar Pradesh is 25-40 per cent lower than potential, as mills lack funds for developing higher-yielding seeds,” said DCM Shriram Deputy Managing Director Ajit Shriram.
The sugar industry was estimated to end the current season (on September 30) with carryover stocks of 7.5 million tonnes. This could have a cascading affect on cane farmers, who might be prompted to opt for crop diversion next season. Also, the government should link cane prices with sugar prices for sugar mills’ long-term sustainability, Shriram added.
The government had announced interest-free loans to the tune of Rs 6,600 crore, equivalent to the excise duty paid for three years. Of that, around 66 per cent has already been disbursed. An extension of another two years will increase the likelihood of up to Rs 4,400 crore of more interest-free loans being given.
“More than the announcement, it is important that the government enforce the decisions. Also, ethanol production should be made remunerative for the industry to supply the green fuel,” said Sanjay Tapriya, chief financial officer of Simbhaoli Sugars Ltd.
NOW, A SWEET PILL?
DECISIONS
- Import duty to be raised from 15% to 40%
- Mandatory ethanol blending with petrol to be raised from 5% to 10%
- Period for interest-free loan (equivalent to excise duty) to be extended by two years to five years
- Export subsidy period to be extended till September 2014
- Sugar price to go up by at least Rs 2 a kg
- Sugar mills’ cash flows to improve
- 10% ethanol blending to save up to $1.7 bn of forex
