Falling short

If the sugar industry was expecting the National Institution for Transforming India (NITI) Aayog’s task force on sugar and sugarcane to come up with a panacea for its numerous and deep-rooted ills, it is in for a disappointment. The report of the panel, headed by NITI Aayog Member Ramesh Chand and having secretaries to various ministries as members, does not offer much to put this sector on an economically sound footing to enable it to survive without fiscal support. Going by reports, the task force has recommended a temporary increase of Rs 2 a kg in the ex-factory minimum sale price of sugar (from Rs 31 to Rs 33 per kg) to mitigate the liquidity crunch the industry is facing. It has also suggested levying a cess of Rs 50 per quintal on sugar (except export) for three years for “bridge funding” during contingencies. Besides, it has tweaked the formula of sharing revenue between farmers and sugar mills, mooted originally by the C Rangarajan committee in its 2012 report, to tilt it towards cane growers. This revenue-sharing mechanism is an alternative to the injudicious practice of arbitrarily determined state-advised cane prices, which are usually higher than the price fixed by the Centre. To address the environmental concerns arising from a steady expansion of sugarcane farming, the panel has proposed capping cane cultivation at 85 per cent of the farmer’s landholding and paying him Rs 6,000 a hectare to shift to less water-intensive crops.

Prima facie, the mooted markup of just Rs 2 to raise the minimum sale price of sugar to Rs 33 a kg seems too meagre to improve the health of the industry, which claims that its production cost is far higher than this. It can, at best, provide some small succour to the sugar mills to marginally dent their liquidity crisis. Also, this hike may be hard to enforce in a situation of over-supply and the lockdown-driven demand collapse, especially in the case of bulk consumers like manufacturers of beverages, confectionery, and traditional sweets. They account for normally over 70 per cent of sugar consumption. Unsurprisingly, the cane price arrears payable to farmers by sugar factories have again started to mount. In Uttar Pradesh alone, these arrears have surged to over Rs 14,300 crore. The industry is seeking urgent government assistance in clearing these dues.

The genesis of the sugar sector’s woes can, indeed, be traced to the lack of equilibrium between the prices of input (sugarcane) and output (sugar and its byproducts). The revenue-sharing system, devised by the Rangarajan panel, required the sugar mills to pay the farmers 70 per of the revenue generated from the sale of sugar and its byproducts, or 75 per cent of that from sugar alone. This mechanism was, by and large, acceptable to all stakeholders, including the industry and the farmers. But the Ramesh Chand panel has made it more farmer-friendly by upscaling their share by 5 per cent. The sugar industry may not be comfortable with this proposal, though its official reaction is not yet known. The government, therefore, may need to look beyond this panel’s report to find effective short- and long-term solutions for the unrelenting woes of the sugar sector.

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