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While decontrol is a positive development for the sugar industry in the long-term, it is likely to result in some pressure on sugar prices in the short term as several cash strapped mills, which currently have substantial cane dues as well as bank borrowings, are likely to liquidate their sugar stocks to meet dues.
However, in the medium to long term, it will provide flexibility to larger and financially stronger sugar mills to manage their inventories and liquidity in order to capitalize on better sugar realizations. The weaker sugar mills too will benefit because it would give them a chance to save on inventory carrying costs and reduce cane arrears, which in turn could lead to better cane availability.
The partial decontrol of the sugar industry is likely to have a positive impact on the sugar industry. The abolition of the levy obligation, which ICRA estimates would have caused a financial burden to the sugar industry to the tune of Rs 3000 crore for the sugar year 2012-13, is likely to improve the profitability of the sugar mills.
The abolition of the monthly release mechanism would also benefit sugar mills in the medium to long-term by enabling them to manage their working capital requirements better while also enabling financially stronger sugar mills to capitalize on better sugar realizations. However, in the short-term decontrol is likely to result in some pressure on sugar prices as several cash strapped mills are likely to liquidate their sugar stocks in order to meet dues, including cane arrears to farmers.
