Hopes that the new government would consider the plight of sugar producers with sympathy had triggered a rally in sugar stocks. Sugar stocks of larger players like Balrampur Chini and smaller ones like Ponni Sugar saw a resurgence of investor interest across the board. But the optimism did not endure. The minister for consumer affairs and public distribution ruled out a rise in basic customs duties on imported sugar. Domestic producers have for long been demanding effective duty protection against cheap imports: domestic sugar stocks are already high and sugar prices in the domestic markets are soft, indeed more than affordable. The minister, however, argued that cheap imports have kept down sugar prices; ergo, continued imports are desirable.On the face of it, the minister is right. However, unlike domestic producers, the trade has no obligation to sell 40 per cent of the imported sugar to the government at administered prices. The domestic producer incurs a loss on levy sugar: the administered pricesare about 15 - 20 per cent below the cost of production. The scope for recouping the levy loss from sales in the open market has vanished with free sugar prices remaining depressed by cheap imports.
To ensure a level playing field, the 40 per cent levy should be extended to imported sugar. In any case, why import sugar when domestic production is more than adequate to satisfy demand? The duty on sugar imports must be hiked. At stake is not only the viability of the sugar industry; worse, low sugar prices will soften prices commanded by the sugarcane grower in vast tracts across the country. This will signal a contraction in sugarcane acreage. There will be a sugar shortage in the next round, perpetuating import dependence in the largest sugar producing country in the world.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.