With arrears of nearly Rs 6,800 crore, a state relief package of Rs 2,100 crore and a soft loan of Rs 1,200 from the Centre is indeed much-needed respite for the private sugar mills of Uttar Pradesh (UP). But UP’s sugar policy perpetuates the malaise, and until that is addressed, the mills will keep needing lifelines like these. The state plays cane politics—sugar farmers are a key votebank—by fixing a state-advised price (SAP) at which mills must buy sugar cane, and thus will have to pay to keep the mills afloat. The SAP, at R280 per quintal, is much higher than the Fair and Remunerative Price (FRP) of Rs 220 per quintal fixed by the Centre. This has led to a situation where the effective cane cost, in FY15, was higher than the ex-mill price of sugar. And, in any case, the relief may fall way short any real impact, given how mills will have to pay back loans first, and that would leave them and the farmers precious little.
The Rangarajan Committee had recommended that cane prices be tied to the revenue of mills from sugar and that farmers be paid the FRP up front. With sugar prices even below FRP, this, too, needs a rethink. Keeping relief packages aside, the solution has to be linking FRPs to market prices of sugar and, eventually, completely freeing up the mills.