Sugar supply to shrink as traders act to stop loss

Traders in the Mumbai wholesale market have decided not to buy sugar from mills as they will not get credit for the sugar cess under the GST regime being rolled out from July 1.

Traders pay ₹71 a quintal as excise duty and ₹124 a quintal as cess while purchasing from sugar mills. The cess is credited to the Sugar Development Fund.

While traders will get credit for the excise duty in the new GST regime, they will lose out ₹124 for every quintal of sugar they hold as inventory beyond July 1. Ashok U Ranavat, President, Bombay Sugar Merchants’ Association, said traders will stop buying sugar from mills from Wednesday to avoid incurring the loss.

“We fear there may be short supply of sugar in the market even though mills have a lot of stock. It may create a bit of chaos for the public,” he added.

In a letter to Finance Minister Arun Jaitley, Ranavat sought action to ensure that traders get the credit for the sugar cess in the GST regime.

Earlier, the association had urged the government to withdraw the 5 per cent GST levied on sugar. Currently, sugar is exempt from all State taxes except for an excise duty of ₹71 per quintal at the factory gate, which works out to 2 per cent of the ex-mill price.

Meanwhile, sugar production in the country is set to increase 16-20 per cent to 24.5 mt in the next sugar season starting October given the timely onset of the South-West monsoon in most of the sugarcane-growing States.

Though mills in North Karnataka are likely to benefit from the monsoons, sugar companies in South Karnataka and Tamil Nadu may be impacted by the trend of poor rainfall affecting sowing in previous seasons, said an ICRA note.

However, higher cost of cane in the coming crushing season may impact margins from Q4 of FY 2018, it added.