Delicensing Not Likely To Result In Capacity Additions, Says Crisil

Credit rating agency, Crisil, is of the view that the delicensing of the sugar industry is may not bring about significant capacity additions, in the short to medium term, as licensing was never a constraint in setting up new sugar plants.

According to Crisil, the inherent cyclicality of the crop, the high level of government control, indifferent performance of the industry and reluctance of financial institutions to finance sugar companies have deterred players from adding capacities in the last couple of years.

The licenced capacity estimated by Crisil is 284 lakh tonne and the installed capacity is only around 141 lakh tonne. "In future, the removal of incentives of 100 per cent free sale to new sugar mills in the above `delicensing' would further discourage new capacity additions because this would render new units uncompetitive and unviable," the impact analysis report said.

"It should be noted that through the current policy the government has only allowed delicensing and no decontrol. Accordingly, the industry will have to continue supplying to the government for sale through the public distribution system at subsidised rates and the government control quota would continue. Decontrolling will materialise only when sugar mills have the freedom to offload their entire production in the open market and the system of quota releases is done away with," the report says.

As part of its ongoing liberalisation, the government had delicensed the sugar industry wherein new sugar mills would not require any government clearance. The Centre has done away with restrictions on the requirements of minimum plant size of 2,500 tonne cane crushed per day for new sugar mills.

It has also withdrawn the 100 per cent free sale benefit given to new sugar units and has also reduced the minimum distance between two sugar mills to a 15 km radius from the earlier distance of 25 km.

According to Crisil, while the government has reduced the distance factor, the manufacturers would not be likely to reduce the spacing between two sugar mills as a reduction in the distance may create problems linked to cane availability.