Plans are also afoot to reduce the excise duty on molasses from Rs 750 a tonne to Rs 200 a tonne. In exchange a cess of Rs 300 a tonne is likely to be imposed to garner additional Rs 400 crore for the Sugar Development Fund (SDF), which is currently being used to finance by-products also. The industry had suggested reducing excise duty on molasses to Rs 170 a tonne.
Further, on the suggestions of the consultancy firm - KPMG, the government is contemplating building up of a strategic reserve stock above the buffer stock for stabilising the prices of sugar.
The sugar industry is faced with the problem of surplus production and falling domestic and international prices. The sugar output in the year ended September 2007 was 28.3 million tonne, while the projected output in the current sugar year is likely at 30.6 million tonne.
The domestic consumption demand is around 19 million tonne. The average wholesale prices of sugar are ranging between Rs 13.50 to Rs 15.60 a kg, while the global prices are ranging around $ 330 a tonne. The declining value of US dollar has also affected export earnings.
With a view to enable the sugar industry to improve its bottomline and to liquidate its arrears of Rs 2,600 crore payable to cane growers, the government on December 7, 2007 announced a scheme of interest-free loan by banks (with subvention by the government) equivalent to the notional excise duty payable on total sugar production in 2006-07 and 2007-08.
The director in the Union finance ministry, N Ramanathan in a letter to the industry said : Presently there is minimum support price for sugarcane with no corresponding minimum protection for sugar. Even levy sugar remains unlifted whenever free market price fall below levy rate.
Commenting on the fresh loan relief, he said : While such relief measures are welcome to get some cash flow to tide over deficits, the real relief to sugar industry can come only with recovery in sugar prices. At the minimum, free market price shall not be below levy price. The pressure on liquidity has forced most millers to continuously drop free market prices as if there is no bottom. This is sure to worsen with further rise in 2007-08 production. He said that the government was preparing guidelines for banks to make it a pre-condition that mills do not sell sugar below the levy price.