The government has raised the import duty on both raw and refined sugar to 25% from 15% to discourage cheaper inflows from overseas, as mills are struggling to clear cane arrears running into thousands of crores even more than two months after crushing is over.
However, the hike in import duty is still much lower than the 40% promised by the government in June if mills gave an undertaking that they would clear all cane arrears at the earliest. Sources said the government sought to moderate the hike to balance the interests of producers with those of consumers.
Earlier this month, food minister Ram Vilas Paswan said that of the total cane arrears of R8,703 crore, UP alone accounted for as much as R5,304 crore.
“At the current global prices of sugar and rupee-dollar exchange rate, the move to increase import duty to 25% will make sugar imports unviable. This will check unnecessary import of cheaper sugar," Abinash Verma, director-general of Indian Sugar Mills Association, said, while hailing the government’s decision.
With the uncertainty of sugar imports no longer being there, domestic market sentiments would improve and traders will show better buying interest, arresting any possible drop in prices, Verma said. This will also improve revenue realisation for sugar mills and help them clear cane arrears of farmers at the earliest, he added.
However, the industry wants the government to raise the sugar import duty to 40% in the long run to check imports in case global prices fall, he said, adding that the country is already reeling under about 2.5 million tonne of surplus sugar.
Millers say sugar prices may inch up slightly with the latest move but won't flare up due to huge stock lying with producers.
At current global prices, the cost of producing refined sugar from imported raw sugar would be around R35.50 to R36 per kg, factoring in a 25% import duty, he said.
The cost of sugar production in mills in Uttar Pradesh this month is around R37 per kg, although the mills get some relief by selling other cane byproducts such as ethanol. So with 25% duty, imports won't be attractive.
Domestic sugar producers had complained that since they were made to pay a hefty price for cane in states like Uttar Pradesh, any scope to import sugar when global prices were low would bleed them. This is because returns from sugar sales had not kept pace with rise in prices of cane.
While the state advised price of cane in Uttar Pradesh, the second-largest sugar producer, has been raised 70% in the last four years, sugar prices have gone up by 7-10%, primarily due to a glut in the domestic market following four straight years of surplus production.
Industry executives said that while around 50,000 tonne of raw sugar has been imported under the open general licence (OGL) in recent months, as much as 3,11,000 tonne has been contracted for imports from Brazil, although it's yet to be ascertained whether they are against the OGL or an advance licensing system under which mills have to re-export an equal quantity of sugar at a later date.