G. Srinivasan

New Delhi, Dec. 6

THE munificent step of the Uttar Pradesh Government in the form of new sugar industry promotion policy, announced in August 2004, has turned out to be both salutary and timely. This is despite apprehensions among some sugar mills in the State of being marginalised due to fresh and new capacities coming under the new scheme.

Industry sources said following the new investment promotion policy for sugar industry, there had been a rush of investment with over 20 new sugar plants with most of them planning production from the current sugar season beginning October 2005. Major sugar companies such as Bajaj Hindusthan Ltd, Balrampur Chini and a few other sugar companies have committed investments of the order of Rs 4,000 crore. A spate of greenfield and brownfield expansion projects has either already begun or are bracing to start crushing cane in the current season. Their investments would add around 1,40,000 tonnes crushed per day (TCD) fresh capacity which would translate into an additional production of 2.5 million tonnes of sugar in the next two to three years, taking the total sugar production from the State to 7.5 million tonnes and making it the largest sugar producing State.

The sources said the long-term effect of such high infusion of investments would be far-reaching. A sugar-producing unit of 5,000 TCD or above capacity typically employs 1,200 to 1,500 people and the rising number of new sugar factories with higher capacity would only contribute to new employment. Besides, these new mills would generate indirect employment for over two lakh people, primarily in transporting cane, sugar, bagasse and pressed mud. As a sugar mill will have 40,000 to 60,000 farmers in its vicinity deriving their economic sustenance from it, an additional 10 lakh farmers stand to eke out their livelihood from the new sugar mills that are coming up in the State, giving a new impetus to the purchasing power of the rural populace and stoking demand for wage goods down the line.

The sources contend that farmers are also likely to receive feedstocks, seeds and agricultural inputs worth Rs 18 crore a year for cane development from these new units, even as the spurt in sugar production by 2.5 million tonnes per annum would result in significantly higher revenue earnings for the State treasury.

The potential spurt in the State's sugar production in the short-term has come as a shot-in-the-arm for the farmers, the industry and the State treasury. This is presumably because the country's domestic sugar production skidded from slightly over 20 million tonnes in 2002-03 to just 13 mt in 2004-05. But the consumption of sugar has been hovering around 17-18 mtduring the last few years, thanks to the sufficient opening stocks supplemented by imports contracted periodically to cover deficit in domestic consumption. Even as the sugar production is slated to increase to around 18 mtin the current sugar year, the consumption of sugar would also be up at 19 mt.

As the country imported 8.89 lakh tonnes of raw sugar at a cost of Rs 954.24 crore during 2004-05 fiscal to make good the plummeting domestic production in 2003-04 and 2004-05 seasons, such duty-free imports by actual users against advance licences (ALS) obtained under the Duty Exemption Entitlement Certificate (DEEC) but subject to export obligations to be fulfilled within stipulated span would now come home to roost. There is a genuine fear that after fulfilling export obligation in this fashion, the country would be faced with dwindling carryover stock in the next sugar year, unless extant sugar factories work to capacity or the new big sugar units come on stream in time to crush cane on a higher gear.

In this scenario, the UP sugar mills with their locational advantage of easier access to sugarcane would do well to meet the burgeoning domestic consumption of sugar in the country, fuelled by rising income levels, the optimal growth rate of large sugar consumers, such as beverage companies and the change in consumer preference from gur and khandsari to sugar, pushing the existing consumption of 19 mt a year to over 24 mt by 2009-10, the sources said.

(This article was published in the Business Line print edition dated December 7, 2005)
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