An informal group of ministers (GoM), headed by agriculture minister Sharad Pawar, on Thursday decided to provide incentives for raw sugar exports up to four million tonne over the next two years and asked the food ministry to rework its proposal on the quantum of the dole-out.
However, the food ministry has to raise its subsidy offer by at least 46% to R3,500 per tonne to make exports viable in a global market already awash with supplies, industry executives said.
After finalising the quantum of subsidy in consultations with the finance ministry, the food ministry is expected to place the proposal before the Cabinet Committee on Economic Affairs (CCEA) in its next meeting for approval, food minister KV Thomas said.
The move is aimed at reducing white sugar production in the country to cut a glut and diversify product base.
If the government agrees to provide subsidy of R3,500 per tonne, as demanded by the Indian Sugar Mills Association (ISMA), the burden will be to the tune of R1,400 crore over two years, compared with R956 crore, based on the food ministry's current proposal, a source told FE.
Earlier in the day, the panel discussed the food ministry's proposal to offer a subsidy of R2,390 per tonne to be borne by the Centre and producing states, and asked it to finalise its suggestions after taking inputs from the finance ministry, the source said.
However, while the price of raw sugar in Mumbai is R22,500 per tonne — factoring in premiums over New York futures price — the cost of raw sugar production stands at R26,500 per tonne.
Taking into account transportation and other costs totalling R2,200 per tonne, the total cost of exports for mills would be to the tune of R28,700 per tonne.
“At R3,500 per tonne subsidy, mills would still be making losses, but sugar can be exported. This is because mills' realisation from exports would be slightly higher than domestic sales, thanks to low local prices of sugar," said ISMA director-general Abinash Verma.
The government's move to subsidise raw sugar imports was part of a series of recommendations by the Pawar-led panel last month to bail out the cash-starved sugar industry and hasten the process of clearing cane arrears.
Subsequently, the CCEA on December 26 approved modalities for extending interest-free loans worth R6,600 crore to the sugar industry.
However, another key recommendation of the panel to double the limit of ethanol blending with petrol to 10% is yet to be taken up by the CCEA.