After saying its directors were quitting fearing prosecution and that it was shutting its operations in Uttar Pradesh (UP), Mawana Sugars has told the state government it will continue cane-crushing operations. In other words, the state’s legal threats have worked—under the law, no mill can shut down without the permission of the state’s cane commissioner. This is what has made it possible for the state to play cane politics for years by setting an uneconomic cane price at which mills simply have to purchase cane from farmers. So, as compared to the central government’s Fair and Remunerative Price (FRP) of R220 per quintal, UP’s State Advised Price (SAP) is R280. While this ensured that all mills in the state have been running at a loss for years—that is why they regularly delay payments to farmers—what has worsened matters is the collapse in global sugar prices, as a result of which sugar mills in the rest of the country are also in trouble. But while some relief from the Centre may help alleviate their problems, the UP problem cannot be fixed unless its government decides to follow states like Maharashtra and Karnataka and adopt the Rangarajan Committee formula. Instead of an SAP, Rangarajan recommended paying the farmers the FRP on receipt of the cane and, eventually, giving them 70% of the proceeds from the sale of sugar and various by-products. In Uttar Pradesh, the cost of purchasing cane, based on the SAP and the cane recovery, is higher than the price of finished sugar in the market place, so addressing this is critical—for FY15, against the ex-mill price of sugar of R2,700 per quintal, the effective cane cost alone was R3,194 in UP. As a result of such policies, Indian sugar is not even competitive globally—India produces 20% of global output but accounts for 4% of exports as compared to 30% and 43%, respectively, for Brazil.
If the UP millers are to avoid the yearly cycle of rising arrears—on March 31, the arrears are likely to be R8,666 crore, or around 55% of the total arrears for the entire country—and arrest warrants against their officials, threats of closures and some relief from the government (this year, R40 per quintal of the SAP is to be paid by the state), they will have to approach the Supreme Court again. In 2004, in a 3:2 judgement, the Supreme Court had said the state had the power to fix the SAP. The millers challenged this in 2011 and the SC said a larger bench would be set up, but this is yet to be done. With the UP government paying R17 per quintal last year, and R40 this year, there is an increasing financial cost it is incurring for its populism—at 80 million tonnes of sugarcane crushing, that works out to R3,200 crore. At some point, the government will have to take a call on whether this is a bigger vote-catcher than free laptops and other freebies.