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G. Chandrashekhar

Mumbai , Aug 26

THE Allahabad High Court has reportedly stayed the creation of new capacity or expansion of existing crushing capacity by sugar mills on the ground that the industry is not yet officially delicensed.

This followed a petition lodged by a sugar mill in Uttar Pradesh alleging that large cane crushing capacities being created by big players in the State denies the complainant access to sugarcane as new mills breach the 15 km zoning restriction or come perilously close to it, thereby luring the cane growers away.

Under extant law, sugar mills have a spatial monopoly over an area of 15 km and new mills cannot be established in breach of this zoning regulation.

In 1998, vide a press note, the Union Government announced the delicensing of the sugar industry. The move was a follow-up to the series of recommendations made by the Mahajan Committee in its report. Ironically, the Mahajan Committee had recommended against delicensing, but the policymakers acted otherwise.

According to sugar industry representatives who did not wish to be identified, in recent months, furious expansion of crushing capacity in Uttar Pradesh by private sector mills has unsettled a part of the industry.

Smaller mills are obviously wary of the expansion plans and apprehend limited availability of cane for their crushing.

While several persons Business Line spoke to refused to comment on the development, stating that they had not yet seen the court order, it is clear that the court ruling has come as a bolt from the blue for bigger mills that are in the process of expansion. It is estimated that as much as Rs 4,000 crore is likely to be invested in Uttar Pradesh's sugar industry.

Interestingly, UP is expected to produce a bumper sugarcane crop this season. There is apprehension that cane prices may crash if there is freeze on capacity and big mills are not allowed to purchase cane. While lower cane prices will affect cane growers' incomes, any cutback in sugar production will lead to a price rise. Already sugar prices are around Rs 1,900 a quintal in the open market.

To tide over the situation, a broad view that is being pushed is that the cane requirement of smaller mills should first be met and bigger mills could mop the balance so that farmers' interests are not compromised.

Meanwhile, there is tremendous uncertainty about the much-awaited total decontrol of the sugar industry that is slated for October 1, 2005.

Conflicting reports about actual implementation of decontrol are circulating in industry and trade circles.

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