With cane arrears mounting to Rs 21,000 crore, government today decided to raise import duty on sugar to 40 per cent, from 25 per cent, and remove excise duty on ethanol to help mills clear dues to farmers.
These decisions were taken at a meeting of the Cabinet Committee on Economic Affairs (CCEA).
“The duty on import of sugar under the OGL (Open General License) shall be increased to 40 per cent as against the current level of 25 per cent. This would prevent any imports in case international prices of sugar were to depress further,” an official statement said.
The government also decided to remove “excise duty on ethanol supplied for blending”, it added. Presently 12.36 per cent central excise duty is levied.
“It has been decided that ethanol produced from molasses generated during the next sugar season and supplied for ethanol blending would be exempted from excise duty and the price benefit would be passed on the to the sugar mills/ distilleries,” the statement said.
The government said that these steps would significantly improve the adverse price sentiments in respect of sugar and would improve the liquidity in the industry, facilitating the clearing up of cane dues arrears of the farmers.
Earlier this month, Food Minister Ram Vilas Paswan had held two separate meetings of farmers and chief ministers to resolve the cane arrear crisis.
To bail out the cash-starved sugar industry, the Centre had in August last year hiked the import duty on both raw and refined sugar to 25 per cent from 15 per cent. In February this year, it provided a subsidy of Rs 4,000 per tonne for the exports of 1.4 million tonnes of raw sugars.
Sugar prices are depressed due to surplus domestic production in the past four years, the government said, adding that mills have been constrained for liquidity and are facing difficulties in clearing cane dues owed to the farmers.
“This has affected the incomes of 50 million sugar cane farmers. Similar conditions of subdued prices prevail in the global markets,” it said, adding that as on March 31, 2015, the cane dues arrears stood at Rs 20,099 crore.
Yesterday, Paswan had said in Parliament that cane arrears stood at Rs 21,000 crore and all efforts were being made to address the problems. Apart from hike in import duty and removal of excise duty on ethanol, the government has decided to withdraw the ‘Duty Free Import Authorization’ scheme (DFIA).
Under this, exporters of sugar could import permissible quantities of raw sugar without any duty for subsequent processing and disposal.
“To prevent leakage of sugar made from such duty free imports in the domestic markets, the DFIA scheme for sugar would be withdrawn,” the statement said.
Similarly, the period for discharging export obligations under the Advanced Authorization Scheme for sugar would be reduced to 6 months so as to prevent possibility of any leakage into the domestic markets, it added.
Sugar production in India, the world’s second largest producer, is estimated to be higher than the domestic consumption for the fifth year in a row.
Production is estimated to cross 27 million tonnes in the 2014-15 marketing year (October-September), as against 24.3 million tonnes in the previous year. The annual domestic demand is about 24.8 million tonne.
Surplus output has led to fall in sugar prices. Ex-mill prices is currently ruling at Rs 23-27/kg in the country, while the cost of production is over Rs 29-33/kg.
“The government has, from time to time, provided financial assistance to the industry to overcome liquidity constraints such as providing interest free working capital loans and incentives for raw sugar exports. However, due to adverse price sentiments plaguing the sector, problems of cane dues arrears persist,” the statement said.