The government has fixed a minimum sale price of Rs 29 per kg for sugar mills, aimed at containing a current slide in sweetener prices below costs that has bled mills, limiting their ability to pay farmers for cane supplies.
The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a package for the sugar sector — comprising Rs 4,440 crore in loans to mills to expand ethanol production capacity and Rs 2,507 crore as aid in the form of interest subsidy on the loan and carrying cost of creating a buffer stock — to help the mills clear cane arrears that have risen to a staggeringRs 22,000 crore. Including an output-linked subsidy of Rs 5.50 per quintal to farmers for cane supplies (with potential cost of Rs 1,540 crore to the exchequer) that was approved by the CCEA in May and the current loan, the total financial considerations in all these decisions stand at Rs 8,487 crore. FE had reported these proposals, along with fiscal implication for the government, on May 23.
The Cabinet and the CCEA approved a slew of other proposals, including using land parcels with public sector units that are being wound down to build affordable housing, revising up the remuneration of postmen that will benefit 3.07 lakh employees, and building a six-lane bridge over the Ganga.
While the salary revision for postmen will cost the government Rs 1,258 crore in 2018-19, the construction of the 9.9-km-long bridge across the Ganga at Phaphamau in Allahabad will cost the exchequer Rs 1,948 crore.
Revised guidelines on time-bound closure of sick/ loss-making central public sector enterprises (CPSEs) and disposal of movable and immovable assets have also been approved, which will cut delay in implementation of closure plans of such CPSEs. Food and consumer affairs minister Ram Vilas Paswan said to help mills clear cane arrears, the government will offer an interest subsidy of Rs 1,332 crore (over a five-year period) to mills on loans of Rs 4,440 crore they will take over the next three years to boost ethanol production. The move is aimed at helping the mills diversify their product basket and cut down reliance on sugar sales. The government will bear a carrying cost of Rs 1,175 crore a year for the creation of the proposed buffer stock of 3 million tonnes of sugar.
The government has fixed a minimum sale price of Rs 29 per kg for sugar mills, aimed at containing a current slide in sweetener prices below costs that has bled mills, limiting their ability to pay farmers for cane supplies. The government has also decided to impose a stock-holding limit on sugar mills, initially up to September, which may be reviewed anytime.
“Mills are selling sugar at Rs 26-28 per kg as against the average production cost of Rs 32 per kg,” Paswan said. Exports are also not viable at the moment, as international prices are lower than domestic sugar rates, he added. While this would be the third package of incentives in the last five years, the interest subsidy and loans haven’t stopped the piling up of cane arrears, as both the Centre and states have raised cane prices to unreasonably high levels. Cane costs, based on the more reasonable fair and remunerative price (FRP) fixed by the Centre (Uttar Pradesh’s price is even higher), account for 90-100% of mills’ sugar price realisation, according to Indian Sugar Mills Association (Isma).
Nevertheless, the latest push to ethanol will help mills improve their margins. At present, the country has an ethanol production capacity of 270 crore litres, according to an industry estimate. Mills will be supplying as much as 158 crore litres of ethanol for blending with petrol in the current ethanol marketing year.
Isma director general Abinash Verma hailed the Centre’s move to boost ethanol production capacity and create a buffer stock of sugar. However, he said the decision to impose stock holding limits on sugar mills is tantamount to “controls on sugar sales, which is not the right way to move into the future”. Also, while the decision to fix a minimum ex-mill sale price of sugar at Rs 29 per kg will improve the prices from current levels of around Rs 28 per kg, it’s still at least Rs 6 lower than the ideal minimum sale price, if cane FRP-based cane costs are taken into account, he said.
For its part, the Centre has already announced a Rs 5.50 per quintal subsidy to farmers for cane supplies, with a potential cost of Rs 1,540 crore to the exchequer. The Goods and Services Tax Council is weighing the possibility of imposing a cess on sugar and trimming the GST rate on ethanol, a cane by-product, from the current 18% to 12% so that the benefits can be passed on to mills to clear cane dues. It has also scrapped an export duty on sugar and mandated that mills must ship out a portion of their production, in a bid to cut massive surplus inventory.