Partial decontrol of the sugar sector would help clear mounting cane arrears and generate additional cash for the next crushing season, Narendra Murkumbi, managing director of Shree Renuka Sugars, tells Dilip Kumar Jha. Edited excerpts:

What would be the impact of the government's recent decision to partially decontrol the sugar sector?
It would certainly help the sector, as now, it would have the freedom to sell its produce when it wants to, at the prevailing market price. While it is difficult to specify how much it would add to the sector's kitty, abolishing the mandatory levy would certainly reduce the sector's mounting burden, which stood at Rs 3,000 crore this year, against Rs 100-200 crore in 2000-01. The levy burden was like a tax which mills had to bear, irrespective of the profit or loss in the business. Now, the net margin would rise by Re 1 a kg. I don't think this wouldn't allow open market sugar prices to rise, as surplus sugar is available. Also, working capital would be released and utilised according to managements' decisions and requirements, rather than a template decision. The move would also change banks' perception towards the sugar sector.

After partial decontrol, do you think the loss-making sugar industry would see a turnaround this year?
To survive and do well, mills must have a business structure for recording profits, irrespective of the sugar price movements. No commodity would move upwards unchecked, always. Even today, some companies are recording good profits, while others are accruing losses. To see a turnaround, mills recording losses have to reconsider their business models and readjust these accordingly.

Considering there are a number of sick mills, don't you think there will be consolidation? Also, won't some mills gain in the consolidation phase?
Consolidation cannot be expected overnight. But over the next few years, consolidation is inevitable. If some deliver and the others don’t, banks and investors would back the successful companies. It is too early to speculate whether small companies would be merged with big players. Whenever it happens, the shake-out could be across the private and cooperative sectors.

How would decontrol incentivise more investments in the sector? Which segments of the sector have high investment potential?
The industry does not need additional greenfield capacity. Currently, it has 31 million tonnes (mt) of crushing capacity. The demand is not very high and cane availability is a way to utilise the full capacities available. The challenges before the sector are putting enough cane through this capacity and ensuring sugarcane is available at prices at which both farmers and mills make some money.

India’s sugar consumption is 23-24 mt, and this is expected to rise to 30 mt by 2020. Therefore, in the medium term, investment would be required to enhance sugar production and meet consumption growth. Substantial investment is also required in cogeneration and distillation. In these spaces, about half the mills generate power for captive consumption alone; lots of molasses are being sold at throwaway prices. Ethanol generation would also be a focus. This is because with the government clearing mandatory blending with petrol, ethanol production has huge potential.

How should the cane price issue be resolved? Should state governments play a major role in fixing cane prices?
Currently, cane prices are unrealistic. The Rangarajan committee has made valuable suggestions, in line with the best practices around the world. These include fixing the cane price by a formula linked to the realisation from sugar, molasses and bagasse. For the long term, that is the only way through which the cane price issue can be resolved. The Karnataka government has passed a law on a revenue-sharing mechanism between mills and farmers, the first such case in India,. This would be implemented in the coming season. Karnataka is linking cane prices for farmers with the realisation of mills---the system prevailing across the world. This model can be adopted by other states, too.