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IT is a bittersweet package for the players in the sugar industry. The announcement of a new package to reschedule outstanding loans and allow sugar companies to access fresh debt at competitive rates of interest will provide a fillip to debt-restructuring initiatives and the capacity expansion plans of the players.

But the significant hike in specific excise duty on molasses and the simultaneous cut in customs duty on molasses and industrial alcohol may immediately cap the realizations that sugar companies earn from the sale of these by-products.

Companies that are in the throes of debt restructuring, such as Dhampur Sugars, Mawana Sugars, Sakthi Sugars and Ponni Sugars, may be possible beneficiaries of a financial package that will give companies access to low-cost debt and set a two-year moratorium on principal and interest outstanding on term loans.

The proposal to allow sugar companies access to loans at two per cent below the bank rate (this will work out to about 4 per cent under the prevailing rate structure) may also ease the way for second-line companies planning to put up new capacities over the next couple of years.

While companies such as Balrampur Chini and Bajaj Hindusthan already have access to international funds at competitive rates, smaller players such as Mawana Sugars, Dwarikesh Sugars and Oudh Sugar Mills may benefit from access to low-cost funds.

It also appears positive that this revitalisation package will be spearheaded by NABARD and the Indian Banks Association, rather than routed through the State governments. On earlier occasions, financial packages announced for the sugar sector with the participation of the State governments did not find too many takers.

On the other hand, the reduction in the import duty on molasses and industrial alcohol from 15 per cent to 10 per cent may negatively impact realizations that sugar companies earn from these by-products.

The domestic prices of molasses and industrial alcohol have spiralled sharply over the past year on account of cane shortage, putting user industries under pressure.

After the duty cut, user industries — such as breweries and chemical companies — could find the economics tilting further in favour of imports. The simultaneous increase in the specific excise duty on molasses from Rs 500 to Rs 1,000 per tonne could also be difficult for sugar companies to pass on, as this would constitute a significant increase in the prevailing price levels for molasses (which rule at about Rs 4,000 per tonne).

The Budget also makes no reference to the other substantive recommendations of the Tuteja committee, which had suggested a removal of the free-sale mechanism, an increase in the command area requirements and a freer import-export regime for sugar.

Import duty on raw as well as white sugar has been held at the previous 60 per cent.

Aarati Krishnan

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