Brace yourself to pay more for sugar as the government proposes to levy a cess on the sweetener to compensate cane farmers who are being paid below fair and remunerative price (FRP) by mill owners.
Sources said after being prodded by the Prime Minister’s Office (PMO), the ministry of consumer affairs, food and public distribution is exploring the option to load sugar prices with an additional cess between Rs 1 and Rs 1.25 per kg. It has also written to ministries of finance and law for advice on whether a cess can be levied on sugar under the new goods and services tax (GST) regime that has merged all surcharges and cesses in a four-slab tax rate. The Centre is exploring newer options to provide better compensation to cane farmers. Farmers are unhappy that they get lower payments and cane arrears have also built up. Discontent among farmers could be politically suicidal for the government ahead of 2019 general elections in large states of Uttar Pradesh and Maharashtra.
The Centre has also not been able to convince cane-growing states to check their arbitrary pricing mechanisms. This has created inconsistencies in pricing and has affected both farmers and sugar mills. Under the proposed mechanism, collection from the cess would go towards a central fund that would finance any gap between the cane price mills can pay to farmers in accordance with the Rangarajan panel’s revenue-sharing formula and the benchmark rate fixed by the Centre under fair and remunerative pricing (FRP) mechanism initiated in 20091-10.
Once the cess is able to fund the gap between FRP and Rangarajan formula, there would be certainty over the pricing of sugarcane making it difficult for states to justify arbitrary pricing and forcing mills at times to pay even more than FRP. Reportedly, states like Uttar Pradesh have been imposing state advised prices (SAP) for cane that is even higher than FRPs, bleeding mills’ balance sheets.
“Centre is well within its right to levy cess on sugar as long as this is not going for compensating states for loss of revenue for implementing GST. In such cases, approval has to be taken from GST Council and then GST Compensation to States Act needs to be amended,” said a tax expert, explaining that a cess for any other purpose could be levied through a central notification. The FRP has been substantially hiked in recent years but sugar prices have remained subdued due to bumper production this year. With projection of record production even in 2018-19, sugar mills ability to pay farmers at elevated levels would build further pressure on them. Timely levy of cess could reduce their burden to a certain extent.
While the FRP has been hiked by more than 83 per cent between 2010-11 and 2017-18, the ex-factory price of sugar has gone up only 25 per cent during this period.
This has also resulted in build up of cane price arrear owed to farmers to Rs 13,931.61 crore as of January 31 in the current 2017-18 marketing season. Most of the dues are from mills in UP where the state government has fixed SAP of Rs 315 per quintal for 2017-18. This is higher than the FRP of Rs 255. Uttar Pradesh millers owed Rs 5,552.76 crore, followed by mills in Karnataka at Rs 2713.65 crore and Maharashtra at Rs 2,636.03 crore. The arrears for 2016-17 stood at Rs 902.90 crore and earlier years at Rs 1,686.12 crore.