Editorial

The Centre and States are aggravating the sugar industry’s problems

| Updated on October 05, 2020 Published on October 05, 2020

The solution lies in freeing both cane and sugar prices from the shackles of government control and allowing free market forces to dictate the demand-supply equation for sugarcane and its end-products

The sugar industry, supposed to commence its crushing activities for the 2020-21 season this month, appears to be hamstrung by problems — some familiar and some new . In what has become a familiar story after every season of surplus, the industry has run up large arrears with farmers for the supply of cane. A report in this paper said that sugar mills in Uttar Pradesh alone have run up arrears of over ₹8,447 crore for 2019-20 — twice the amount due in the previous year — for the cane that they had already procured and crushed last season.This year, because of the extended lockdown, millers’ cash flows have been hit by a sharp fall in the institutional offtake of sugar from food and beverage makers and hotels — usually a stable revenue source. The industry’s persistent working capital crunch has also been aggravated by the Centre delaying its promised payouts towards transport subsidy on sugar exports, relying on which the industry has shipped out over 60 lakh tonnes of sugar this year. The Centre has been tardy in reimbursing mills for the carrying costs on the 40-lakh tonne buffer-stock created at its behest. State governments, on their part, have been delaying payments on co-generated power.

Rather than promptly cough up these dues, the Centre and governments of key sugar-producing States have persisted with populist policy measures that interfere in the active functioning of the market and aggravate the industry’s structural problems. For instance, instead of desisting from hikes in the Fair and Remunerative Price (FRP) for cane, which would discourage farmers from planting excessive cane, the Centre has kept up FRP hikes and begun announcing a ‘minimum selling price’ for sugar. States like Uttar Pradesh have worsened the over-capacity situation with unrealistic State Advised Prices and capital subsidy schemes. The industry’s own efforts at de-risking the business through forward integration moves such as the processing of molasses into ethanol and bagasse into power have come a cropper, too. Annual skirmishes between the sugar industry and oil marketing companies on the quantum and pricing of ethanol have ensured that the ethanol blending programme is a non-starter. With revenues from co-generated power dependent on the shaky finances of State discoms, this diversification gambit hasn’t worked either.

The obvious solution to the sugar industry’s woes lies in freeing both cane and sugar prices from the shackles of government control and allowing free market forces to dictate the demand-supply equation for sugarcane and its end-products. Many expert committees, including the C Rangarajan committee in 2012, have already put out well-thought-out policy prescriptions for untangling the mess that is the Indian sugar sector; the only thing required is the political will to implement these recommendations.

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Published on October 05, 2020
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