In a bid to help cash-starved domestic producers, the Union Cabinet raised the import duty on sugar to 40 per cent from 25 per cent on Wednesday. The move will curb imports as sugar prices are depressed, with a fifth consecutive year of surplus output in the offing.

Additionally, the Cabinet also removed the 12.36 per cent excise duty on ethanol supplied for blending, for the 2015-16 season (October-September), to pass on price benefits to mills.

The mills collectively owe ₹21,000 crore to cane farmers, Food Minister Ram Vilas Paswan said earlier this week.

However, it is not clear how the duty hike could help mills, considering that imports in 2014-15 were nil under the Open General License (OGL), while the previous year saw just 0.98 lakh tonnes being bought, as per data provided by the Indian Sugar Mills Association (ISMA).

“The ‘Duty Free Import Authorisation’ (DFIA) scheme for sugar would be withdrawn…similarly the period for discharging Export Obligations under the Advanced Authorisation scheme would be reduced to six months so as to prevent any possibility of leakage into the domestic market,” an official statement said.

Under DFIA, exporters can import permissible quantities of duty-free raw sugar for processing and disposal.

“These measures will significantly improve the adverse price sentiments in respect of sugar and would improve liquidity in the industry, facilitating clearing up of arrears of cane dues to farmers,” the statement added.

Welcome step Sugar production in India, the world’s second-largest producer after Brazil, is likely to touch 270 lakh tonnes (lt) for the current season, up from 243 lt last season. Domestic demand is pegged at 248 lt. Mills have repeatedly asserted that the cost of production — at ₹29-32/kg — has been higher than ex-mill prices, which range between ₹23-27/kg.

“The sugar industry welcomes the decisions…to remove excise duty on ethanol would increase net realisation to mills by around ₹5/litre of ethanol which should incentivise some mills to divert B-heavy molasses or cane juice into ethanol. This will reduce surplus sugar production from next year,” said Abinash Verma, Director General, ISMA.

He, however, added that there was an immediate need to reduce the 35 lt of surplus sugar that was blocking almost ₹10,000 crore in cash flows.

“We understand that the government is already planning to take a decision for the above. We would urge the government to quickly decide on our request to buy out 10 per cent of our current year’s sugar production,” he said.

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