Centre to work on incentives for sugar mills to help pay farmers: Gadkari

he food ministry has moved a draft Cabinet note on creating a sugar buffer of 3 million tonnes and fixing a minimum ex-mill price

In the next week to 10 days, the central government is expected to finalise a second lot of incentives to help cash-strapped sugar mills clear cane payment arrears to farmers, said Road Transport Minister Nitin Gadkari.

Under consideration is creating a buffer stock of sugar and pushing export to China and Bangladesh,” Gadkari, who heads a committee on the issue, told Business Standard. 

The food ministry has moved a draft Cabinet note on creating a sugar buffer of 3 million tonnes (mt) and fixing a minimum ex-mill price, says news agency PTI.

Cane payment arrears are about Rs 220 billion, in the wake of a sharp fall in sugar prices and record production. Cane prices are set by state governments.

The note follows a recent letter to the Prime Minister from Sharad Pawar, former Union agriculture minister and Nationalist Congress Party (NCP) chief. It asked for immediate intervention to deal with the sugar glut. Production is at an all-time high of 31.6 mt so far in the 2017-18 season (ending September 30), on higher cane output.

“After deliberating on Pawar’s suggestions by both the Prime Minister’s Office and a committee of secretaries, the food ministry has prepared a draft note, proposing two-three interventions,” said a highly placed source.

The ministry has proposed the buffer stock of up to 3 mt, a minimum ex-mill sale price at around Rs 30 a kg, reintroducing the monthly release mechanism (which tells mills how much sugar they may issue into the market) and a stock limit for each mill, the source added.

The average ex-mill price of sugar is Rs 25.60-26.22 a kg at present, below the cost of production.

Pawar’s letter suggested various other interventions, including a higher price for ethanol (a byproduct in making sugar), removal of multiple taxes by states on movement of molasses and on sale of ethanol, plus a reduction in the goods and services tax (GST) on ethanol from the present 18 per cent to 5 per cent. 

The NCP chief had also sought a bailout package for mills. Sources say the petroleum ministry is looking into the ethanol issue and the finance ministry on a financial package for millers.

Gadkari said the Centre was considering promotion of second-generation ethanol, lowering the GST on it and the cess on sugar, the bulk of which is purchased by big brands. 

Early this month, the government had approved a production subsidy of Rs 5.5 a quintal for cane farmers to help millers clear cane arrears. It has doubled the sugar import duty to 100 per cent and scrapped export duty. It has also told mills to export a combined 2 mt.

Sugar output of India, the world’s second largest producer, was 20.3 mt in 2016-17. Annual domestic demand is estimated at 25 mt.