The decision comes amid allegations of farmers that despite having almost 20 per cent of sugarcane standing in their fields, a few mills in the western Uttar Pradesh have stopped issuing indents or have slowed them down considerably which is forcing them to sell the crop to local jaggery makers at much lower rates.
Indents are written assurances issued by sugar mills to the farmers within their pre-demarcated areas to purchase sugarcane from them at rates fixed by the government.
After Centre decides to pay Rs 5.5 per quintal to farmers as an incentive, the sugar mills will have to bear the rest of the amount. The state-mandated Fair and Remunerative Price (FRP) for sugarcane is Rs 255 per quintal.
For 2018-19 sugarcane marketing season that started in October in Uttar Pradesh, the State Advised Price (SAP) of sugarcane determined by the state government is Rs 315 per quintal for normal varieties and Rs 325 per quintal for early sown varieties.
According to the Cabinet officials, the Centre's decision to directly incentivise farmers won’t attract WTO objections as it is not meant to subsidise exports or farmers but to only help the sugar mills clear their dues quickly.
Earlier, the Centre had scrapped an export tax of 20 per cent and fixed a made mandatory the exporting of 2 million tonnes of sugar in 2018-19 to clear the domestic surplus and low dues.
Sugar mills had to bear loss on exports on account of recent reduction in international sugar prices due to global surplus and slump in domestic prices to a 28-month low.
The central government would be encouraged to meet their sugar export obligation with its decision to directly incur the portion of the expenditure that sugarcane mills pay to the farmers in the form of cane cost.
Last month a panel of ministers chaired by Transport Minister Nitin Gadkari also considered to impose a cess on sugar to the tune of 5 per cent and lower the GST on ethanol from the current 18 per cent to 5 per cent, apart from the direct incentive to the farmers.
"We might soon place all the three proposals before the cabinet," Food Minister Ramvilas Paswan said after the meeting of which he was also a part.
India’s sugar production
in the 2017-18 season (October-September) is projected to be over 30 million tonnes which would be nearly 10 million tonnes more than the last year, while the consumption is estimated to be around 24-25 million tonnes.
The National Federation of Cooperative Sugar Factories, the umbrella organisation of all cooperative sugar mills in India, along with the ISMA in a recent petition demanded that the government should immediately announce an export subsidy of Rs 1,000 per quintal to push at least 2-3 million tonnes of sugar outside India as domestic prices have crashed sharply.