The Cabinet Committee on Economic Affairs has raised the import duty on sugar to 40 per cent from 25 per cent and also abolished the excise duty on production of ethanol, a key byproduct when sugar is made.

And, importers of raw sugar will have to re-export processed white sugar within six months. They cannot import any raw sugar for their export commitment.

“The move is aimed at preventing any large-scale leakage of sugar made from such duty-free import in the domestic markets,” a senior food ministry official said.

Millers welcomed the move but said it wouldn’t suffice to take excess sugar in the domestic market, which has depressed prices and held up made cane payment dues to farmers.

“…the immediate need is to reduce the surplus of 3.5 million tonnes of sugar, blocking almost Rs 10,000 crore of cash flows. This, and the need to improve the current ex-mill sugar prices, lowest in the past six years, will not get addressed by these decisions,” said Abinash Verma, director-general of Indian Sugar Mills Association.  

Cane dues to farmers were about Rs 20,000 crore as on end-March.

Waiver of the 12.36 per cent excise duty on ethanol will help the mills get an extra Rs 5 a litre on sale to oil marketing companies (OMCs).

At present, mills sell to them at Rs 48.5-49.5 a litre, inclusive of all taxes and duties. At the mill-gate, the same ethanol costs them Rs 40-41 a litre.

“But, all this will come into effect from the next sugar season that will start from October 2015. For this year, we have already produced our quota of sugar and can’t reconvert these to avail this benefit,” a senior industry official said.

The government said that these steps would significantly improve the adverse price sentiment and improve the liquidity in the industry, facilitating the clearing of cane dues.