The Hindu Business Line : Inconsistent policies, data affecting sugar sector

Over the last 4-5 months, the industry raised the production estimate at frequent intervals. Starting with 230 lt at the beginning of the season, production was raised three times in instalments of 10 lt.

The Union Government, too, has not lagged behind in adding to the confusion in estimating cane and sugar production. From 283 million tonnes (mt), cane production was revised up to 315 mt, but only after Business Line brought out the anomaly between cane and sugar output.

Official estimate of sugar production in 2006-07 was 227 lt and the latest is 238 lt after Maharashtra reported a large increase in output.

The State is said to produce 81 lt, a number that many see as grossly over-stated.

Upward Revision

Considering that for 2005-06, the official sugarcane output estimate was 278 mt and sugar production estimate was 195 lt, current year's production marks a sizeable increase.

While higher production is surely welcome, it is worth remembering that generally, Indian agriculture does not lend itself to dramatic upward revision in output.

It is unclear where all the increased production is coming from. If we assume that the latest estimates are closer to the truth, then it casts a shadow on the initial estimates. It was based on the initial cane output and sugar production estimate (announced by the Agriculture Ministry and Food Ministry respectively) that the Finance Ministry deemed appropriate that a ban on sugar exports be imposed.

The ban on export is now sought to be projected as the villain that spoilt the sugar party. To be sure, it is the Government that took the decision to ban export based on Government's own estimates. Someone must assume responsibility for coming up with unrealistic estimates and for making frequent yet large changes. The market deserves more transparency in these matters.

Export incentive

From a ban on export to lifting of the export ban, it has come to a situation of having to grant financial sops for export promotion.

This would entail a huge cost to the exchequer. Burdened by huge production and inventory overhang, the industry is keen to liquidate stocks. Desperate to succumb to the industry demands, the Government has announced a package of export incentive.

Whether the incentive is justified is debatable.

What is the effect of the subsidy? Apart from the possibility of rising domestic price, overseas buyers have already begun to press for $30-35 a tonne lower quote for Indian sugar.

In other words, at the cost of the consumer, the Government is going to willy-nilly subsidise the overseas consumer.

We have markets as close as Pakistan, Bangladesh and Sri Lanka that have been buying because we are today perhaps the lowest cost suppliers of sugar.

Sugar Decontrol

Our Asian neighbours are sure to buy because they can fulfil their import needs from India at competitive prices.

Even without the export incentive, Indian sugar would in any case have gone to the neighbouring countries to meet their needs.

Far from helping exports, announcement of incentive has actually distorted the market.

Our neighbours are demanding supplies at lower prices; and given India's current vulnerable situation, they are sure some exporter or the other would succumb and reduce the export quote.

Direct payment of incentive for sugar export needs to be reviewed as it is unlikely to provide the intended benefit; and it is especially so for export to traditional and virtually captive markets such as Pakistan, Bangladesh and Sri Lanka. In all the confusion, sugar decontrol has been put on the backburner.

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