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Government to hike import duty on sugar; prices may go up, informs Food Minister Ram Vilas Paswan

Monday, 23 June 2014 - 5:17pm IST | Agency: PTI

In a move that could lead to rise in the price of sugar, the government today decided to hike the import duty on it and to provide an additional interest- free loan of upto Rs 4,400 crore to pay dues to cane growers.

At a high-level meeting convened by Food Minister Ram Vilas Paswan, it was decided that the import duty will be raised to 40 per cent from 15 per cent. It was also decided that the export subsidy will be extended till September this year to give relief to the sugar industry, which owes Rs 11,000 crore to cane growers largely in Uttar Pradesh. Efforts will be made to implement mandatory 5 per cent ethanol blending with petrol and subsequently achieve 10 per cent blending. The meeting held at the instance of Prime Minister Narendra Modi's direction was attended among others by Transport Minister Nitin Gadkari, Commerce Minister Nirmala Sitharaman, Principal Secretary to the PM Nripendra Misra and Cabinet Secretary Ajit Seth. "We have taken four key decisions. We have decided to extend the interest-free loan given against excise duty paid by sugar mills for five years instead of three years," Paswan told reporters after the meeting.

Industry Body Indian Sugar Mills Association (ISMA) hailed the decision saying this will improve cash-flow of millers and help clear cane arrears. "There is a need to improve the sugar prices to allow mills to at least cover their cost of producing sugar," ISMA Director General Avinash Verma said in a statement. Sugar stocks registered a sharp increase following the government's decision. Verma said that a 40 per cent duty on imports would ensure that sugar from abroad does not flood the market, which is already surplus with 20-25 lakh tonnes. "This would definitely improve the market sentiments, domestic sugar prices and better buying by the traders and wholesalers," he said.

He said today's decision could result in a rise in sugar prices by Rs 1-2 per kg in the wholesale market from the current range between Rs 28 and 31 per kg.

Paswan said mills can avail additional interest-free loans of up to Rs 4,400 crore from banks, he said, adding this will improve their cash flow to make cane payments. However, the minister said the department is yet to calculate the exact interest-free loans to be provided to the industry against excise-duty. 

In December, the Centre had approved Rs 6,600 crore interest-free loans for the sugar industry for clearing cane arrears. It decided to give loans via banks equivalent to the excise duty paid by the mills in the past three years. These decisions will be subject to the mills giving guarantee that they will clear Rs 11,000 crore sugarcane arrears at the earliest, Paswan said. "We don't have any problems to announce these incentives formally if millers are ready to make payments. If they give assurance today, we will announce incentives today itself", Paswan said.

Some of the decisions will be notified by concerned ministries, while some require the Cabinet nod, he added.

Expressing concern over mounting cane arrears, Paswan said, "While the Centre fixes the cane price, some states are fixing higher prices that are putting burden on millers. There should be a holistic view on pricing."

ISMA's Verma said: "Out of Rs 6,600 crore claims for loans, about Rs 4,000 crore has been disbursed by banks so far based on the eligibility and the criteria set by the government". "If this is taken into account, we expect Rs 2,500-3,000 crore loans may finally get disbursed out of the approximately Rs 4,400 crore claims that might come up," he said.  "With improvement in the sentiment because of these decisions taken by the government, we should be able to sell sugar and clear cane arrears soon, which is our top priority," Verma said. The sugar industry has been facing a cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years.

Currently, sugarcane arrears stand at about Rs 11,000 crore across the country, with the maximum of Rs 7,200 crore in Uttar Pradesh. Mills are facing a cash crunch as domestic prices have slipped below the cost of production, hurting their profits. They also fear domestic prices could fall further if cheaper imports are not curbed. Currently, sugar is being imported in smaller quantities. The decision to hike the import duty is expected to curb such shipments.

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