Sugar becomes bitter pill for you and me

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Mills, with excess stocks and nil imports, raise retail prices by up to Rs 10 per kg

Sugar becomes bitter pill for you and me
The funds-crunched government’s unusual pre-budget largesse to the sugar industry by way of interest-free loans and high import duty on sugar has had its first casualty in you and me.

Sugar mills raised retail prices by Rs 2 to Rs 10 per kg on Tuesday on the back of Monday’s official decision to raise import duty on sugar to 40 per cent from the prevailing 15 per cent.

But truth is Indian mills, holding excess unsold stocks, have hardly imported any sugar in the past two years for sale in the domestic market.

When contacted by Financial Chronicle, neither government nor sugar industry officials were able to explain why the prices had been raised with such alacrity, when mills have actually been sitting on 2 million tonnes of unsold stocks. This raises serious questions about the mantri-babu-bania nexus or “crony capitalism” at work.

While the commerce ministry’s official data base shows no figures for sugar imports in the past few years, industry insiders confided to this newspaper that only 200,000 tonnes of raw sugar have been imported so far during the current cane crushing calendar (October 2013-September 2014) that to for re-export of refined sugar. In the previous cane-crushing season (October 2012-September 2013) 500,000 tonnes of raw sugar were imported for similar reasons, along with negligible quantities of refined sugar from Pakistan.

The sugar industry seems to have used the cover of import duty hike announced by the government to push up retail prices. This newspaper had alerted such a possibility, while reporting the government decision in its edition on Tuesday.

Prices of both raw and refined white sugar surged at the Vashi wholesale market in Mumbai on Tuesday. This has been attributed to speculative buying by stockists and bulk consumers on the back of the decision to raise import duty.

Apart from increase in duty, the government had provided Rs 4,400 crore worth interest-free loans as a measure to clear up dues payable to cane growers that stood at Rs 11,500 crore. This is in addition to Rs 5,600 crore interest free loan provided by erstwhile UPA government to help the industry out of liquidity crunch ahead of the general election.

It would be premature to conclude if the industry colluded with the government or acted on its own to raise sugar prices.

But the biggest beneficiaries of the government move and the price rise would be the big sugar mills of western Uttar Pradesh and Maharashtra where the BJP won handsomely in the recent Lok Sabha polls.

Union food minister Ram Vilas Paswan held a meeting on Monday with ministerial colleagues Nitin Gadkari, Nirmala Sitharaman, Maneka Gandhi and Kalraj Mishra, where it was decided to continue with the export subsidy of Rs 3,300 per tonne till September, besides imposition of the deterrent hike in customs duty and the interest-free loan to mills to pay back dues to farmers. It cannot yet be said with certainty if, in doing so, the ministers created the loophole for mills to raise prices

For the second consecutive day, shares of large sugar mills rose on the stock exchanges, in the wake of the price increase.

Stock prices of the 30 BSE-listed sugar firms rose 9.18 per cent on Tuesday. Piccadily Agro, Bajaj Hindusthan, Ponni Sugars and Ugar Sugar surged between 5 per cent and 10 per cent.

Others, such as Simbhaoli Sugar, Sakthi Sugars, EID Parry and Shree Renuka Sugars, rose between 1.36 per cent and 5 per cent.

The NCDEX sugar M-grade (Delhi) for August delivery was quoting Rs 41, or 1.30 per cent, higher at Rs 3,185 per quintal on Tuesday at 8.15 pm, in addition to 2.31 per cent rise in the preceding session. The commodity’s price had earlier touched an intra-day high of Rs 3,201 per quintal, which was 1.81 per cent higher than its preceding session’s close of Rs 3,144.

Sugar price in the spot market jumped to a month high in Kolhapur mandi at Rs 31.28 per kg, while the price in Kanpur mandi touched Rs 33.33 per kg, a six-month high.

Sugar industry body ISMA has demanded that the centre should convince northern states like Uttar Pradesh to link sugarcane rates with sugar prices.

ISMA president Ajit Shriram said, “We would continue to submit to the government for an immediate policy reform --- adoption of linkage formula for determining the cane price at 70 per cent of the sugar price and its by-products. The industry needs it for the benefit of all stakeholders --- farmers, millers and consumers."

Western and southern states, including Maharashtra, Karnataka and Gujarat follow this kind of system.

Former food minister in the UPA government KV Thomas feared that subsidy burden on PDS sugar would go up due to the government’s action. He also criticized the NDA government’s decision to provide additional Rs 4,400 crore interest-free loan to sugar mills to clear the arrears to cane growers.

Thomas said the government should have instead asked states to link the price of cane with sugar realisation, as recommended by the Rangarajan Committee.

(With inputs from Amit Mudgill in New Delhi)


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