Unnecessary intervention

Allowing duty-free imports of sugar was not required

The government’s decision to allow duty-free import of 500,000 tonnes of raw sugar makes little sense. Even while making this announcement, Food Minister Ram Vilas Paswan asserted that enough sugar was available to take care of consumption needs. As recently as mid-March, the total availability of sugar in the current year was around 28 million tonnes, including the opening stock of 7.7 million tonnes, against the anticipated requirement of 24 to 25 million tonnes. Clearly, the year will end with a surplus sugar stock of over 4 million tonnes. Even if the sugar industry’s revised output estimate of 20.3 million tonnes, from the initial government estimate of 22.5 million tonnes, is taken as true – which is not beyond doubt considering Mr Paswan’s charge that the industry was misleading the public – the current season will still conclude with a surplus closing stock. 

What transpired in the past three weeks or so to prompt the government to allow duty-free imports can, therefore, be anybody’s guess. Even within the sugar sector, opinions vary on the advisability of imports and that too of just a small quantity representing a fraction of the total requirement. While one section of the industry feels that more quantities may need to be shipped in to keep prices under check, others maintain that the imports are entirely needless. They argue that the loss in sugar output in Maharashtra and the southern states due to drought has been partly made up by higher production in the north, notably Uttar Pradesh, thanks to larger acreage and the use of high sucrose-bearing cane varieties. Besides, the outlook for sugar production in the next season, commencing October 2017, is fairly encouraging. This apart, the actual consumption during the year may also not be as high because of several factors such as demonetisation, withdrawal of the central subsidy on sugar supplied through the public distribution system (PDS) and the relatively high prices in the domestic market. Besides, there is a view that the import of raw sugar will benefit only those millers that have their own refining capacity. In any case, the sugar industry has already profited amply from high sugar prices this season.

Irrespective of the merits and demerits of imports, the fact remains that India’s entry into the global sugar bazaar is bound to firm up international prices that have remained subdued in the wake of record production in Brazil, the largest sugar producer. In fact, prices have already started moving up. Any further increase in the cost of imports will partly erode the anticipated salutary impact on domestic prices. The larger point to ponder is whether sugar is such an essential item that merits frequent government intervention? After all, the bulk of sugar supplies is cornered by mass consumers like the beverages and confectionary industries and traditional sweet meal makers, and not consumed by the common man. The need, therefore, is for stable policies concerning domestic and external trade of sugar rather than knee-jerk reactions. Price stability needs the demand-driven production of both sugar and sugarcane, which is possible only with minimal government intervention.