If the extraordinarily high cane price in Uttar Pradesh which made most sugar mills lose money wasn’t bad enough, the state’s investment policy is worse. While the Allahabad High Court has ruled in favour of stability, it is an open question as to whether the state will appeal this in the Supreme Court—given this would mean Akhilesh Yadav’s government appealing the policy of his father’s government, it looks unlikely though. In 2004, with not enough sugar mills in the state, as a result of which farmers had to sell their cane at low prices to the relatively inefficient gur/khandsari units, the state—Mulayam Singh was the CM—announced an investment policy offering sops in terms of various levies like purchase tax on sugarcane and trade taxes on molasses. With the caveat that the incentive could never be greater than the investment, the sops were available for 5-10 years. As FE reported on Thursday, around R9,000 crore of investments got made in the state, providing more employment as well as ensuring more cane could be sold to the mills. In 2007, however, when the Mayawati government came to power, it decided to rescind the policy, and began issuing notices to the mills for dues. While the Allahabad High Court has struck this down on grounds of promissory estoppel for Bajaj Hindusthan, it is expected other mills who are in court will get a similar verdict.
Needless to say, any government is free to review decisions taken by its predecessor. This happened at the central level in natural gas prices only recently, and in the case of the 2G licences issued by A Raja in 2008, the Supreme Court cancelled them even though they had been issued by the government. When decisions are reviewed, it is a reasonable expectation that existing concessions be honoured. And in case concessions are to be taken away, or licences cancelled, wrong-doing has to be proved. In this case, however, as the Allahabad High Court has pointed out, no such proof was presented.
While the court ruling provides a much-needed respite for embittered millers, the state’s other policies remain problematic and, sadly, the government lost the last chance it had to fix things. The day of the court verdict, the state announced its State Advised Price (SAP) which, while being frozen for the last two years, is much higher than the Centre’s Fair and Remunerative Price (FRP). As a result of the large losses this entails, sugar mills in the state have been refusing to begin crushing operations this year—they have demanded the state adopt the Rangarajan formula of sharing 75% of receipts with farmers in place of the unacceptably high SAP. With global commodity prices falling to multi-year lows, this is all the more reason for the state to move to this as mills will make larger losses. Also, with the Rangarajan formula in place in states like Maharashtra, sugar from these states can be imported at lower prices into UP. The biggest losers of this policy to help farmers, ironically, will be the farmers since they will end up selling their cane at either the FRP or even lower to gur/khandsari units.