While output-linked sops are WTO-compatible, selective disbursal could create problems
The government is in a bind over how much sugar to bring under the new production-linked subsidy scheme which is set to replace export sops that are non-compatible with World Trade Organisation (WTO) norms.
Double whammy
“Providing the subsidy for all sugarcane produced in the country may prove to be too big a burden for the ex-chequer, but limiting it to just quota exports could lead to action at the WTO,” a Commerce Ministry official told BusinessLine. The Food Ministry’s proposal of switching over to production-linked sugar subsidies from an export sop regime was endorsed by the Commerce Ministry as production subsidies are allowed under WTO while export sops are banned.
However, the Commerce Ministry has warned that if the production subsidy is not provided to all cane farmers and given just for the quota amount that is to be mandatorily exported by millers, it could lead to action at the multilateral forum. “If production-linked subsidy is provided for select exports, it could be seen as actually an export subsidy and action could be initiated against India,” the official said.
Export sops
An inter-ministerial panel of senior officials under the Department of Food and Public Distribution (DFPD) is now looking at how to sort out the problem of coverage, before placing the proposal before the Union Cabinet.
The DFPD has been forced to discontinue export sops for raw sugar that it had announced in the past two sugar years (October to September) as the sops were being questioned by competing sugar producing countries such as Australia, Colombia and Brazil at the WTO.
“If we would have continued to give sops in the new sugar year that started last month, one of the sugar producing countries would have dragged us to dispute at the WTO,” the official added.
The Centre, therefore, let the export sops lapse on September 30, and started working on an alternative scheme linked to production.
The DFPD wants that even if it is not possible to give such subsidies to all sugarcane produced in the country, it should be at least given for the four million tonnes of sugar export quota mandatorily fixed by the Government and imposed on sugar millers. The quota has been imposed to get rid of some of the domestic glut and help millers pay cane arrears to farmers which stands at over an estimated ₹12,000 crore.
Sugar millers have said that they would suffer huge losses if they export sugar under prevailing market conditions without sops as the global prices for sugar is much lower than the domestic prices.
The DFPD has proposed to give a direct payment of ₹47.50 a quintal as production subsidy to farmers of sugarcane.
India’s sugar production in 2014-15 was 28.1 million tonnes against a domestic demand of 24 million tonnes.