Centre could raise sugar MSP 10% to Rs 32 a kilo, but there is a caveat

The sugar companies will have to make sure they do not demand any further subsidy from the Centre once the MSP hike has been announced

In a major relief to the beleaguered sugar sector, the Centre is likely to revise the sugar minimum selling price (MSP) by 10 per cent from its current level of Rs 29 a kg to Rs 32 a kg in the weeks ahead.

Last year, the Union food ministry had fixed the ex-factory sugar sale price at Rs 29 a kg to help domestic sugar mills amid falling retail sugar prices and the export-market squeeze owing to a global glut in the sector.

However, following a build-up of sugarcane outstanding and the start of the fresh crushing season 2018-19, the industry had been demanding a higher sugar sale price of around Rs 35 a kg to improve margins and for speedier settlement of arrears.

Talking to Business Standard, a highly placed source said on the condition of of not being named said the central government would review the current MSP and announce a hike of Rs 2-3 a kg in the sugar sale price soon. “However, there would be a caveat of the sugar companies not demanding any further subsidy from the Centre once the MSP hike has been announced,” he informed.

In June 2018, the Centre had announced a Rs 7,000 crore package to ease liquidity in the sugar sector, while fixing MSP of white (refined) sugar at Rs 29 a kg. Besides, the Cabinet Committee on Economic Affairs (CCEA) announced the creation of buffer stock of 3 million tonnes (MT) of sugar.

In Uttar Pradesh, the country’s top sugar producer, the Yogi Adityanath government had also announced a soft loan package of Rs 4,000 crore to help the private sugar millers payoff farmers. The state had announced other benefits as well to ease the payments positions.

Besides, the government had written to the Centre demanding increase in the state sugar sale quota to 1.1 MT per month and hiking the ex-factory sugar sale price from Rs 29 a kg to Rs 32.50. The state government had apprised the Centre that UP mills held unsold inventory of nearly 96,000 tonnes pertaining to last year and in the current season, the mills were expected to produce 12.5 MT of sugar, thus adding to inventory further.

The arrears, including the carryover of the previous 2017-18 crushing season, are estimated at Rs 6,500 crore in the two key sugar producing states of UP and Maharashtra, which together account for more than half of India’s annual sugar output.

Earlier, All India Sugar Trade Association (AISTA) chairman Praful Vithalani had said the accumulation of arrears was a “seasonal phenomenon” owing to fresh production of sugar starting from October onwards, while the export market had also been lower than expected.

The global sugar market sentiments continue to be muted with the sugar futures indices bidding goodbye to 2018 calendar at decadal low levels owing to supply glut, perpetuated primarily by the top two suppliers India and Brazil.

However, China, which has a big raw sugar import market of 4-5 MT, was also expected to announce its current season quota in the next few weeks, which would ease the situation. Indian sugar is also exported to Bangladesh, Sri Lanka and the African countries.