NDA government's decision to protect the sugar industry through a series of steps, which immediately triggered an increase in sugar price, represents the downside of the political economy of sugar industry in India. The essence of the problem is that sugarcane price in key cane growing states, particularly Uttar Pradesh, is determined politically. Consequently the price of input, sugarcane, has little relation to sugar price. The outcome is a crisis in the sugar industry. The government's solution is to ask consumers to pay a higher price. This cycle goes on and on and is influenced by timing of assembly elections — Maharashtra, home to sugar producers, is scheduled to go to polls in a few months.

Food minister Ram Vilas Paswan announced import duty on sugar had been increased to 40% from 15%, the second increase in a year. This was supplemented by subsidized loans to sugar mills and more subsidies to help them export. There is no sign, however, that this bailout will be followed by reform. Moreover, the moves put India at risk of penal action by WTO. What is to prevent the UP government now from repeating its performance? Between 2010-11 and 2012-13, the state arbitrarily increased the price of cane by an average rate of 19.3%, while sugar price rose by 2.6% a year. It resulted in a crisis as sugar mills could not pay farmers.

Paswan should reform this system by getting states to stop dispensing patronage by pricing sugarcane high, as its cost is borne by consumers. Currently, the Centre recommends a price for sugarcane and this can be used as minimum price mills need to pay farmers. The final price farmers get must depend on the market price for sugar.