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Harish Damodaran

NEW DELHI, Dec. 16

BARELY a month after the Centre's decision to finance the creation of a 20 lakh tonne (lt) sugar buffer to bail out the ailing industry, a fresh controversy has broken out over the issue of allocating the total sequestered quantity among individual mills.

In the previous episodes of buffer creation on Government account — 1982, 1983, 1993 and 1996 — the total buffer quantity (five lt each) was distributed among different mills based on their respective production levels for the preceding sugar season. But this time round, the Centre is said to be favouring a pro-rata system of allocation linked to the stocks of individual sugar factories as on October 31, 2002.

In fact, the Union Minister of Consumer Affairs, Food and Public Distribution, Mr Sharad Yadav, is understood to have already given the go-ahead for pro-rating the 20 lt buffer between factories to the stocks held by them as on October 31, rather than their actual production during the 2001-02 season ending September 30. A formal notification to this effect is expected in a day or two, according to official sources.

The move to link buffer allocation to stocks has generated a rift within the industry, with mills in Maharashtra coming out in support and those in other States, particularly Uttar Pradesh and Tamil Nadu, opposing it. The latter contend that the real problem facing the industry has been excess production in the last three seasons. The high levels of stock accumulation by factories is a result — but not the sole manifestation — of this over-production.

``Over-production cannot be measured purely on the basis on stocks held by mills on a certain date. One should also account for the desperate measures taken by mills to dispose of their stocks, including exporting at a loss. A factory that has somehow managed to liquidate its stocks by selling domestically or exporting at a huge loss is, by no means, in a better financial position compared to a mill that has chosen to hold on to its stocks and incur the additional carrying costs'', a leading UP miller pointed out.

The miller alleged that the move to link buffer allocation to stock levels of factories was initiated at the behest of the Maratha strongman, Mr Sharad Pawar. Mills in Maharashtra were, as on September 30, 2002, saddled with sugar stocks of 43.98 lt, involving a total blocked capital of around Rs 5,300 crore.

Although factories in UP, too, have begun the new 2002-03 season (October-September) with stocks of 26-27 lt, the problem of stocks is less severe, as many of them have secured Court Orders for disposing of sugar in excess of their official free sale release quotas. It is a different matter though that in doing so, they have incurred huge losses.

On the other hand, mills in Tamil Nadu are carrying very little stocks, having exported the bulk of their sugar produced in the previous season — again at below cost of production.

The Managing Director of the Maharashtra State Cooperative Sugar Factories' Federation Limited, Mr Prakash Naiknavare, however, defended the proposed move. ``We, unlike mills in the north, have consistently adhered to the release mechanism. Only during the last two months have our mills sought Court permission to sell beyond our release quotas. If we are carrying stocks as old as 20 months because of playing by the rules, it is only fair that we are adequately compensated,'' he said.

The Cabinet Committee on Economic Affairs (CCEA) had, on November 25, cleared the creation of a 20 lt sugar buffer for a one year period to be financed from the Sugar Development Fund (SDF). While the 20 lt stock to be sequestered on Government account would continue to be maintained by the factories, the carrying cost — interest, storage and insurance charges — is to be borne by the exchequer.

Besides this direct subsidy, estimated at Rs 412 crore, mills also gain by way of being able to obtain 100 per cent bank credit (translating to an additional liquidity of Rs 374 crore) on the sequestered quantities, without their having to provide for the normal 15 per cent margin money on the borrowed sum.

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