Investors are happy at one more round of sops for sugar mills, whose shares have risen on the good news. But the National Democratic Alliance government’s prescription does little to cure the sugar sector’s maladies, and continues what its much-criticized predecessor did. Company financials may benefit from these sops, as prices are expected to increase, but this rise, of course, will be wholly artificial.

A hike in import duty to 40% from 15% means that even if domestic prices increase, imports will not flood the market. The earlier United Progressive Alliance government had increased duties from 10% to 15% in December. Similarly, a raw sugar export subsidy introduced by the earlier government has been increased to Rs.3,300 a tonne from Rs.2,277 a tonne, and will run till September.

Additionally, the government has proposed a doubling of the ethanol blending ratio to 10%. Whether this proposal makes any difference is doubtful, as last year, oil companies were unwilling to pay the higher price sought by some sugar mills.

Far more important is the fact that none of these steps are the innovative or bold measures one would like to see from the new government, one that is widely touted as being reform-oriented. These steps do not address the sector’s underlying problems. The only difference with the previous government’s policies is that it is proposing to link these sops to a commitment from the industry to clear arrears to farmers.

Even if some of these measures were unavoidable, the government could have signalled that it will implement the pending recommendations of the Rangarajan committee report on sugar sector reforms.

These include linking the sugar cane procurement price to market prices, freeing farmers to sell cane wherever they wish, ending the minimum distance criterion between sugar mills, removal of quantitative restrictions and inter-state movement restrictions on molasses and ethanol, free pricing of by-products, and fully exempting sugar mills from mandatorily using jute for packaging.

Sure, some of these reforms fall under the purview of the states, but the new government has often said it will work in close collaboration with them. Strangely, even the sugar industry seems to have stopped clamouring for full decontrol.

The current set of sops may result in higher domestic sugar prices. International prices are anyway stable due to fears of a lower output in Brazil. If India’s sugar cane output is hit by a poor monsoon, then global and domestic sugar prices can rise further. Mills may be happy at this outcome, but the government will be blamed for rising prices. That could see it overturn these measures and upset investor calculations.

It will be a familiar tale then, one that played out in the previous government’s tenure. The sugar industry will be better off being completely deregulated, rather than being held hostage to petty politicking.