Indian sugar mills association

Sugar decontrol: Industry sees just sweet talk for now

Date:	17 Jan 2012

Source:	The Financial Express

Reporter:	Banikinkar Pattanayak

News ID:	850

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New Delhi: The sugar industry has renewed calls for lifting the decades-old state control over the sector, but with the economy slowing and fiscal deficit widening, even a partial decontrol looks highly unlikely, according to analysts and senior industry executives.

At present, the government decides on how much sugar mills will sell in the market every month and has mandated them to supply 10% of their output at below-cost for state-run welfare programmes. It decides the minimum price the mills have to pay for sugarcane purchase and also imposes periodical limits on stocks large buyers can hold to thwart hoarding. These curbs are leading to a regular cycle of boom and bust and are also stifling growth, says the industry, which hasn`t attracted any FDI for years now.

There never probably was a better time for the industry to push for lifting the government control. India, the largest sugar consumer and the second-largest producer, is exporting surplus stocks for a second straight year, and the government expects output to touch 24.7 million tonne in the year through September 30, compared with the consumption of around 21.5 million tonne. Global consultancy firms like Kingsman have argued in favour of loosening the control on the sector for it to flourish, and the industry is more advanced than it used to be 10 years back to handle its affairs.

“It`s (decontrol) very important to break the cyclicality of sugar output. Cash flow into the sector will improve,” said National Federation of Co-operative Sugar Factories MD Vinay Kumar. But there never probably was a more difficult time for the government to accede to such a demand, analysts said.

Food minister KV Thomas said he would discuss with the ministries of agriculture and finance whether and how to loosen the grip over the sugar sector, while food secretary BC Gupta said his ministry was open to lifting the control, provided interests of farmers as well as consumers are protected. But a complete decontrol looks unlikely as states are free to set cane prices in their territories over and above the Centre-fixed rate. It will be difficult for the Centre to de-regulate the sector without taking states on board.

Since states like Uttar Pradesh often use cane price to woo voters, any idea of decontrol won`t cut the ice ahead of the assembly polls.

Considering this scenario, the Indian Sugar Mills Association (ISMA) is seeking a partial decontrol of the sugar sector for the time being. According to ISMA, the government should at least “reform the sector by removing the levy obligation and abolishing the monthly regulated release mechanism” as the Centre doesn`t have to seek states` responses on these issues.

Scrapping the levy obligation alone would inject around R3,000 crore a year into the mills, ISMA director general Abinash Verma said. “Why should we be the only industry to subsidise the government for its welfare programme? The sugar industry has not be granted the benefits of liberalisation,” said another industry executive.

However, with the government set to miss its fiscal deficit target, it won`t like to take another subsidy hit of R3,000 crore a year on itself by lifting the levy obligation, said an analyst. “In all probability, the government will only talk about decontrol now, but actual action can`t be expected anytime soon,” he added.

In fact, farmer leaders are split on the issue. While Consortium of Indian Farmers Association secretary general P Chengal Reddy pitched for the removal of “restrictions on sugar levy and release mechanism”, Bharatiya Krishak Samaj president Krishan Bir Chaudhary opposed lifting the control.

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