Sweet talk

The Centre’s move to raise the import duty on sugar from 15 to 40 per cent, facilitate up to ₹4,400 crore interest-free bank loans to mills for clearing cane arrears, and doubling the mandatory ethanol blending in petrol to 10 per cent is notable for the sheer decision-making speed and coordination. While the merits of the decisions can be debated, what is striking is the focused manner in which the concerned ministers (food, agriculture, petroleum and finance, among others) along with the Cabinet Secretary and the Principal Secretary to the Prime Minister sought to address the pressing problems of a cash-strapped industry. Given how the lack of coordination and urgency has held up decision-making in sectors such as power, telecom or roads, this represents a refreshing departure.

That said, steps such as hiking import duty, extending an ₹3,300/tonne subsidy (‘incentive’) on raw sugar export till September or providing interest subvention on bank loans are only but short-term palliatives. They may be well be justified in a context where mills are facing a genuine liquidity crisis and owe some ₹11,000 crore to cane growers. But the decisions do not address the root of the problem, which is the politicisation of cane prices by state governments. Today, we have a situation where sugar is decontrolled, with mills free to sell to anybody, anytime and at any price. But when it comes to cane, growers enjoy no such freedom. The state government allocates cane areas to individual sugar factories, with no new mill being allowed to come up within a prescribed distance of an existing one. In exchange for area ‘reservation’, mills are obliged to pay a state-determined cane price having no relation to sugar realisations. Mills are, moreover, subjected to restrictions on sales of molasses — their primary job here is to meet the requirements of the potable liquor industry that generates valuable excise revenues to states.

The sugar sector’s ultimate salvation lies in total decontrol. That would mean doing away with cane area reservation and allowing growers to enter into supply arrangements with mills of their choice. The very need to secure assured cane supplies will force mills to offer a remunerative price, apart from extension support and other input services. If necessary, the Centre could fix a minimum price for cane linked to realisations from sugar and primary by-products. Controls on molasses or processing of cane juice (including for direct conversion into alcohol) should also be dispensed with. Such reforms, of course, require the cooperation of state governments. They need to be persuaded that high import duties, export sops and zero-interest loans to mills are a one-time affair. It is in their long-term interest to guarantee a viable sugar industry.

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