The government is considering allowing imports of 3-5 lakh tonne of sugar at a concessional duty of 25%, as it weighs a raft of proposals to boost supplies in the build-up to the festival season, especially in southern states where a deficit is anticipated in September and October. If approved, it would be the second time in the current marketing year that the government will permit limited imports at zero/concessional duties, thanks to a fall in output in drought-hit Maharashtra, Karnataka and even Tamil Nadu. At present, both raw and refined sugar imports are taxed at 50% under the open general licence (OGL) to discourage dumping from overseas. Senior officials with the Prime Minister’s Office and the food ministry held discussions this week on ways to step up supplies so that prices don’t shoot up in any region before fresh output hits the market in late October, a source told FE. The proposal is aimed at preparing for a potential shortage to prevent speculators from manipulating the markets rather than addressing a real shortfall, said the source.
Although there are speculations about an impending shortage in eastern states as well, such a scenario seems unlikely. This is because mills from Uttar Pradesh are flush with stocks following a bumper production in 2016-17, and keeping with past trends, they can easily supply to these regions as well. Among other proposals, the government is contemplating relaxing the advance authorisation scheme (AAS) to allow domestic sales of refined sugar, processed out of imported raw under the scheme. Currently, imports of raw sugar are allowed at zero duty under the AAS only for re-exports, after processing and value addition.
While the options of allowing both raw and refined sugar imports at lower duty under the OGL are being floated, the government may be constrained to permit only refined sugar purchases from abroad. This is because it will take 40-45 days for mills/refiners to just firm up contracts and bring raw sugar from Brazil. Then they have to process the raw sugar. By the time refined sugar, made out of the imported raw, hits the southern states, we will most likely be in October. This would defeat the very purpose of allowing limited concessional imports to avoid a price spiral in the run-up to the festival season. Prices could start reacting by then to any perceived shortage in the southern states, especially Kerala which is dependent on outside supplies. Also, the government could follow the strategy of allowing the imports in only those ports which will serve the purpose of meeting any potential shortfall in southern states. This is to ensure any such import window isn’t abused to further worsen the regional disparity. As for easing conditions under the AAS, while refiners/millers are currently mandated to re-export within six months, the government is considering increasing the time frame to 18 months. Also, while refiners are, at present, required to process the imported raw sugar and re-export from the same factory to fulfil the actual user condition, the government is considering removing such a condition to allow them to sell refined sugar in the domestic market.
These proposals, however, are fraught with risks of delay in actual supplies as well as manipulation. Some unscrupulous elements may seek to take advantage of such a change in rule. An official estimate has pegged sugar production in 2016-17 (October 2016-September 2017) at 202 lakh tonne and consumption at 244 lakh tonne. However, since the country had as much as 77 lakh tonne of stocks from 2015-16 and raw sugar to the tune of five lakh tonne has already been imported due to a relaxation offered by the government earlier this year, the carry-forward stocks from this season to the next will be to the tune of 40 lakh tonne.
This can meet consumption for less than two months, which means there is enough stock for the country as a whole to meet demand until mid-November by when fresh production will reach the market. Still, thanks to regional disparity in production and given that Maharashtra, Karnataka and Tamil Nadu have witnessed a drop in output this year, the government doesn’t want to take the risk of any shortage for even one-two months in southern states. Earlier this year, the government had approved duty-free imports of only raw sugar up to five lakh tonne under OGL in anticipation of a shortfall. Later, as prices stabilised, the government even raised the import duty to 50% from 40% to discourage further imports through OGL to prevent any adverse impact on the ability of mills to clear cane arrears.