A panel of ministers decided on Friday to offer a subsidy of Rs 3,500 per tonne on exports of up to four million tonne of raw sugar over the next two years, as suggested by agriculture minister Sharad Pawar, sources said.
The government has to offer a Rs 1,400-crore subsidy to the sugar industry over two years if the move is endorsed by the Cabinet Committee on Economic Affairs (CCEA). The decision is aimed at encouraging cash-starved mills to diversify their product base and cut the current glut in refined sugar.
The panel agreed to review the subsidy, to be borne mainly from the Sugar Development Fund under the food ministry, after exports of two million tonnes of raw sugar. The food ministry has proposed offering cash subsidies to exporters.
The CCEA deferred a decision on the issue twice over differences between the ministries of agriculture and food over the quantum of subsidy. The food ministry initially firmed up a proposal to offer Rs 2,390 a tonne for raw sugar exports and was asked to rework its recommendation. However, it later trimmed the proposed subsidy level even further to Rs 2,000 a tonne, which the industry said wouldn't make exports viable in a market already flooded with South American supplies.
The latest proposal to offer Rs 3,500 a tonne was arrived at after a meeting of Pawar with food minister KV Thomas and finance minister P Chidambaram on Friday. The food ministry has to formally place the proposal before the CCEA for clearance.
Based on current raw sugar futures prices in New York, analysts said millers could still lose around Rs 1,000 per tonne, even after factoring in the subsidy of Rs 3,500 per tonne. "At Rs 3,500 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," Indian Sugar Mills Association director-general Abinash Verma said last month.
Awash with supplies, exporters in Brazil have been offering discount over the New York futures prices since October, which could compound the worries of Indian mills wishing to export raw sugar. Importantly, global sugar inventory is expected rise to 43.4 million tonnes in the current year through September 30, the biggest since 1960, according to the US Department of Agriculture. This means prices may remain subdued in the global market for some more time. Raw sugar futures in New York closed at 15.85 cents per pound on Thursday, down 1.6% after investors booked profit following a recent rally stoked by rough weather in Brazil. The government's move to subsidise raw sugar exports 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 Rs 6,600 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.