Sweeten the deal

Updated: Jan 14 2005, 05:30am hrs
fe-ICRA Snapshot

The annual turnover of the sugar industry is estimated at Rs 300 billion with a capital employed of Rs 500 billion. India is the largest sugar consuming country in the world, next only to Brazil in production.

Demand-supply

In 1998-99 to 2002-03, production outstripped consumption leading to stock accumulation. However, 2003-04 witnessed a significant decline in production. Sugar producers belong to both the private and co-operative sectors, with the latter accounting for over 50% of production in 2003. The largest private sector company has just 2% marketshare.

Key Issues

Regulatory control: The Centre announces the statutory minimum price (SMP) for sugarcane procurement by mills with some states too following the practice of announcing state advised prices (SAP). It regulates sale through a release mechanism. Sugar manufacturers have to sell 10% of their output to the government under the "levy sugar" scheme which is sold at a concessional rate under the Public Distribution System or (PDS). While the price of PDS sugar is announced by the Centre, the price of free sale sugar is affected by the release mechanism (as the Centre decides the quantum of sugar that can be sold).

Raw material procurement: Cane prices are linked to 9% recovery and have witnessed an upward trend since 1996-97. The SMP is linked to the previous year's average recovery.

Low economic size: The average cane crushing capacity in India is only 2,500 tonne crushed per day (tcd), while in Thailand it is 10,300 tcd and Brazil 9,200 tcd. Poor economies of scale and high cost has affected exports.

TAX STRUCTURE

Customs

White sugar: 60%

Raw sugar: Duty free imports allowed under the advanced licensing scheme with an obligation to export within 36 months.

fe PERSPECTIVE

Set the ball rolling for completely deregulating the industry.

Put in place a long-term policy to handle periodical sugar shortages/surpluses

Sort out policy on ethanol programme

CEO SPEAK
The Budget must hasten decontrol of the industry. The differential in import duty for raw and white sugar should be at least 25-30%. Debt recast package as recommended by the Tuteja committee should be implemented.
Ram V Tyagarajan, CMD, Thiru Arooran Sugars Ltd
CII SUGGESTIONS

Encourage use of ethanol (which is produced from sugarcane molasses) in a mixed gasoline fuel

Reduce excise duty on sugarcane molasses from Rs 500 a tonne to Rs 200 a tonne

FICCI WISHLIST

Allow remission of basic excise duty of Rs 34 a quintal for one year

Extend 150% weighted deduction of the cost incurred by sugar factories for road construction in rural areas