The Hindu Business Line : Structural issues not addressed

THE sugar industry is once again the beneficiary of Government support, this time in the form of a financial package for its revitalisation handed in by Mr P. Chidambaram in his latest Budget.

Simply put, more funds at reduced cost will flow to sugar mills. Cooperatives are most likely to be the largest beneficiaries of the new package. But there is concern if more money by itself will help revival.

The last one year has witnessed a dramatic change in the sugar industry's fortunes. Overhang of stocks, low prices, squeezed margins and general financial stringency have largely been replaced by tightening supplies, rising open market prices and import of raw sugar to tide over shortage.

Many private sector mills have got out of their trouble and their stock prices are rising on the bourses. Cane arrears are not at the alarming levels they were in two years ago.

While a number of mills have demonstrated it is possible to improve performance in a situation of shortage and rising prices, many others continue to languish.

To what extent the new financial package will help mills revive and revitalise remains to be seen. Previous steps taken by the Government have delivered little. In 2003-04, the Centre granted a one-time assistance of Rs 2,563 crore to be given to States as soft loan to enable clearance of cane price arrears.

Also, financial incentive in the form of ocean freight cost as also handling and marketing charges was granted for export of sugar.

Yet, the current Budget has failed to take cognisance of the structural issues that stymie the sugar industry. Some of the major issues of concern that need to be addressed include rationalisation of cane price, consolidation of fragmented processing capacity, encouragement to become multi-product entities (co-generation, ethanol, downstream products) and professionalisation of management, especially of cooperative mills.

The sugar industry is slated for total decontrol by October 2005 when the 10 per cent levy on mills and the so-called free-sale release mechanism should stand abolished. One is not sure if the latest revitalisation package would help the sugar industry, especially the co-operative sector, face the challenge of total decontrol.

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