The Economic Times report “Government set to remove cap on sugar import, export” dated 25th December, 2012, reports that the Government is considering removal of any quantitative cap on both export and import of sugar, as part of its reforms agenda for the sugar sector. The newspaper report suggests that senior Government officials from Agriculture, Food and Public Distribution held an inter-ministerial meeting at Krishi Bhawan to discuss a stable and a viable long-term sugar export-import policy to do away with any ambiguity in future, regarding the export-import policy of the Government vis-a-vis sugar, for the benefit of sugar millers, farmers and consumers.
However, the Government would keep with itself the power to change import or export duties as the situation demands, to moderate trade and maintain demand-supply equilibrium of sugar in the country at any given point of time.
The Prime Minister in May this year, allowed unrestricted export of sugar without any time limit for the sugar season 2011-12. This was to take care of the surplus production of sugar in 2011-12 and worsening financial health of sugar mills unable to pay huge cane arrears to the cane farmers. This was, however, later restricted to sugar exports against Registration Certificates obtained till 30th September, 2012. Sugar mills could only ship out roughly 10 lakh tons of sugar till September 2012, mainly due to weakening sugar prices in the international market.
The DGFT has now issued a fresh Circular on 24th December, 2012, informing interested sugar mills to obtain Registration Certificates to resume exports, under OGL without any restrictions, though under same conditions as decided in May, 2012. But sugar exports at this point are unviable due to soft global prices of sugar. Had the Government allowed unrestricted sugar exports as early as January or February of 2012 or in the first half of 2011-12 sugar season; sugar mills could have leveraged the high international prices of sugar and earned profits and could have paid cane prices on time.
The newspaper report also suggests that along with removal of quantitative cap on export and import of sugar, the Government plans to keep import-export duties under its reins in order to regulate trade and check artificial shortage or excess of sugar in the market in case of unchecked export or import of sugar at any given point of time.
It’s imperative that Government keeps an eye on price fluctuations both in the domestic and international market. In case global sugar prices drop significantly, which make sugar imports cheaper, the Government should increase import duty so as to check cheaper sugar from abroad from flooding the Indian market, as this could otherwise, mean losses to the domestic producers of sugar. Likewise, in a shortage sugar year, the Government might increase the duty on sugar exports to keep a check on sugar going out of country, which can otherwise reduce sugar availability, and increase prices in the market due to the sudden shortfall of sugar.
However, it is important to note that any duty on sugar exports are not feasible or welcomed by the cash-starved industry which has bigger monetary obligations to meet and would not like to give away its profit to the Government.
The country has exported around 34 lakh tonnes of sugar till September last season. It is also heading towards a hat trick surplus sugar production year in 2012-13 with sugar production expected at 240 lakh tonnes. This means sugar exports can happen without affecting domestic consumption/demand, under OGL as permitted now, as and when the opportunity comes up.
When international sugar prices are ruling low as of now and the country does not require any sugar to supplement its availability, the Government should impose higher import duty to check cheaper sugar from entering Indian markets. The Indian sugar industry both private and cooperative mills, have been demanding a sharp increase in import duty from 10 percent to 60% to protect the domestic sugar producers from cheap imports into the country, which would prove unpropitious to the domestic sugar producers.
The decision to remove quantitative cap on export and import of sugar is a move in the right direction. It will only give confidence to the industry and also to the farmers who will not switch over to other crops due to uncertainty in getting remuneration for their produce. Also a definite export-import policy framework will also improve the country’s image to the international community which can rely on India for a steady supply and demand.