The commerce ministry has suggested adopting mechanisms other than export subsidy for supporting the sugar sector, as justifying such sops would become difficult at the World Trade Organisation.
The ministry's comments were made in response to a draft Cabinet note on sugar export subsidy for 2020-21 (Oct-Sep), a senior government official said today. The draft note by the food ministry is for subsidy of 10.5 rupees per kg on export of up to 6 mln tn sugar exports.
The food ministry must consider structural reforms, including expansion of distillation capacity to produce ethanol for blending, on priority to make the sugar sector competitive and stable, etc, the commerce ministry said.
India will not be entitled to give subsidies on transportation, freight, marketing, handling and processing, under the World Trade Organisation Agreement on Agriculture beyond 2023, it pointed out.
In 2019, Brazil, Guatemala and Australia had filed disputes against India's sugarcane and sugar related policies, which are currently at the panel stage. India's buffer stock subsidy scheme and Maximum Admissible Export Quota have been challenged on the grounds that they distorted the global market.
In the event of adverse decisions, the government will have to modify such schemes as per its commitments to the WTO, the commerce ministry said.
The food ministry is still awaiting comments on the draft Cabinet note from the finance ministry, the official said.
According to sources in the food ministry, it is playing safe by not asking for extra subsity this year because the finance ministry had suggested avoiding any new schemes for the current financial year ending March.
The state of stressed government finances are also clear by the fact that the Centre has been able to pay only 10% of the promised subsidy on sugar exports for this season which is about to end on Wednesday. More so, some export subsidy dues from 2018-19 have also not been paid.
The delay in clarity over next season's sugar export scheme has got the industry anxious as it is impossible for Indian sugar to sell in the global markets without government support due to the gap between domestic and international prices.
Sugar costs about 33 rupees per kg in India, while globally it is priced at 22-23 rupees.
The government has been subsidising exports of sugar to help clear the surplus in the domestic market and support prices. The Indian Sugar Mills Association has pegged the closing stocks as on Sep 30 at 11.5 mln tn.
To bring down surplus sugar, government has been encouraging mills to go for ethanol and also introduced differential pricing for the feedstocks. It has, each year, also increased prices at which oil marketing companies buy the biofuel from mills.
A few days ago, the Prime Minister's Office said that it aims to reduce export of subsidised sugar by 20% every year to help meet World Trade Organization's rules on phasing out such sops.
From here, it will be interesting to see how far can the government support an industry sustain that has become used to crutches. End