Addressing the domestic glut through exports, creating a buffer stock and hiking the import duty will help avert an impending financial crisis in the sugar industry, said A Vellayan, Chairman of Murugappa Group, one of the largest sugar producers in South India.

The country’s sugar production in 2014-15 (October-September) season is estimated at 250-255 lakh tonnes against an annual consumption of about 247 lakh tonnes.

With an opening stock of 75 lakh tonnes, the total estimated surplus will be over 80 lakh tonnes by the end of the year, according to Indian Sugar Mills Association estimates.

Vellayan, Vice-President of the Association, who will take over as its President in December, told BusinessLine that mills across the country are incurring cash losses as sugar prices hit a low of about ₹28 a kg against an estimated production cost of ₹32 to ₹36.

This will hurt not just the industry but also the banks and farmers, he said.

Mounting arrears Earlier this year, sugarcane arrears had mounted to over ₹12,500 crore.

Sugar company debts should be rescheduled and interest rates cut, he said, adding that sugar prices will have to be shored up at viable levels.

The Union Government must continue with the export incentive scheme by renotifying it for about 20 lakh tonnes, Vellayan said. The surplus production in India coincides with a glut in international markets as Brazil and Thailand are also reporting surplus production.

In February, the Union Government notified exports of 40 lakh tonnes of sugar with an incentive of ₹3,300 a tonne for 2013-14 and 2014-15 seasons but just seven lakh tonnes have been exported.

Exports will help shore up domestic sugar prices at ₹30 to ₹31 a kg, still cheaper than ₹32 a kg, the price at which States buy sugar for the public distribution system, Vellayan said, adding that this will at least help avoid cane price arrears.

The Government should also create a buffer stock, along the lines of large sugar producers such as Brazil and Thailand and as is being done for other commodities in India, he said.

A buffer of about 20 lakh tonnes of sugar will help to take it out of the system.

With the domestic sugar production on, imports should be stopped and the import duty hiked to about 40 per cent, Vellayan said.

Hope for decontrol The sugar industry is hoping that the Centre follows through with the total decontrol of the industry as recommended by the Rangarajan Committee.

Sugarcane prices should be linked to sugar prices and that of primary by products.

Ethanol-blending of automobile fuel should be implemented in full with the mills being paid ₹50 a litre for ethanol supplied to oil marketing companies against the present ₹41, he said.

comment COMMENT NOW