Uttar Pradesh’s beleaguered sugar mills, as well as the bankers who have lent to them—already suffering due to the state’s poor sugar policies—have just been dealt yet another blow, by the

Allahabad High Court. In response to a petition by the Rashtriya Kisan Mazdoor Sangathan, the court has ruled that the sugar industry will have to offload its stocks by the end of next month, and that 85% of this will be first given to farmers whose dues have not been paid by the mills—as of today, the arrears amount to R4,626 crore. While the mills are concerned that large offloading of stocks will hit their realisations, bankers have to be worried since, in the normal course of business, they would have been looking to get back their loans first from an industry which is looking increasingly sicker by the day.

While the mills and the banks will probably appeal the ruling, the larger point is that the Uttar Pradesh government has been playing sugar politics for years, with both the mills as well as the farmers, and the current crisis is something that plays out each year at around this time. In an ideal situation, the sugar industry should be fully free, with farmers free to sell to whichever mill they wish to, and vice versa for the mills—but this has not happened for historical reasons. Each year, the Central government issues a Fair and Remunerative Price (FRP) which it expects state governments to notify. Some states, like UP, however, notify a much higher State Advised Price (SAP) at which mills have to mandatorily procure cane. Since this price makes operations uneconomic, the mills pile up huge arrears; the state government then threatens to take action against them and, over a year or so later, the arrears get paid. It was to clean up the mess that, in the interim period, the Rangarajan committee suggested a via media—that mills pay farmers the FRP on receipt of the cane and, based on their eventual realisations, ensure farmers get 75% of the total.

The state government, however, has refused to behave in a responsible manner, and so far the Central government has treated it with kid gloves, probably because it doesn’t want to upset a potential farmer vote bank. If a bailout package has to be given, by way of concessional bank loans or higher import duties on sugar, this has to be preceded by the state announcing its acceptance of the Rangarajan formula.