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Quota system harming the cane industry

Kunal Bose 

It will never be easy to solve the riddle as to why the Indian sugar mill industry has remained beyond the pale of reforms. Since 1991, there have been bursts of dismantling of controls benefiting almost every sector of the economy, sans of course sugar. The hand of government is there from cane price fixing to how much sugar the mills should make over to the state at what price as levy to the quantity the industry is allowed to sell in the open market in a month.

The worst that has befallen the industry under the present dispensation is, a number of states getting into the act of loading a huge premium on New Delhi announced fair and remunerative price (FRP) without sparing a thought for mill operational viability. The industry has its own compulsions in asking the government to make FRP fair and remunerative in real sense, which it is certainly not now.

It proves hurtful for the industry when there is diversion of land from cane to competing crops like wheat, rice and cotton as has been experienced in the current and last season. Land diversion is seen as a kind of silent protest by farmers when they are not adequately compensated for their efforts and equally importantly when they find mills taking an inordinately long time in settling cane bills. At one point in recent past, mill dues to farmers rose to a scary high of Rs 8,000 crore.

Sugar is a mutually inclusive enterprise between cane growers and millers and unarguably the sustainability of the cash crop and hence of sugar production will be underpinned by a hands-off policy of the government. It will, however, be patently wrong to leave the entire blame at government door for this agro-based industry still remaining chained by controls and official interventions. Whatever that may be, the present policy regime has once again left the industry in dire straits with bank accounts of most mills becoming irregular.

Free fall in non levy sugar prices caused by this mid-season spurt in cane supply taking production to over 18.5 million tonnes from initial official projection of 14.5 million tonnes and imports of nearly 4 million tonnes are leaving holes in mill working since March. The virtual absence of buying by bulk consumers who have been providing for their sugar requirements by way of imports is proving to be a market damper.

In fact, with sugar supply improvement it is becoming difficult for mills to make full quota sale for a given month now and the industry had to prevail upon the government to include a significant free sale carry over amount from June quota into the one for the current month. The government allowing July quota to include 200,000 tonnes of unsold sugar from the previous month has given some bounce to the market. But all this shows how the quota system leaving considerable discretionary powers in the hands of bureaucrats is harming the industry. Honestly, free sale sugar is not free if its release is to be decided by the government.

We have got many in the government, including the prime minister himself who are tribally reformist. Even then though the government had occasions to visit the issue of freeing sugar from controls, nothing beyond tinkering with the levy load had happened so far. The period since 1991 has seen tightly controlled industries like steel and cement freed. And more recently, the government made bold to bring fertilisers and oils within the scope of reforms.

Giving the example of sugar in Brazil and steel and cement here, Indian Sugar Mills Association president Vivek Saraogi says foreign investment comes in torrents in industries not bound by controls. As we are seeing global leaders in steel and cement making grand investments here, our own indefatigable Narendra Murkumbi of Shree Renuka Sugars has cut for himself an impressive profile in Brazil. This would not have been the case had not Brazil allowed the mills to operate freely since 1998 with the government, however, ensuring that sugarcane’s clean and renewable energy brings socio-economic benefits to the nation. Close to 50 per cent of Brazil’s energy needs are met from renewable sources and ethanol has the biggest share in that.

Cargill’s teaming up with EID Parry to build India’s largest sugar refinery must be influenced by its belief that at some stage New Delhi will give operational freedom to mills. Industry official Om Dhanuka says Agriculture Minister Sharad Pawar’s statement “We have to withdraw government controls and give full freedom to those managing the industry” promises a new deal for the sugar sector. While there is no justification in singling out the industry to subsidise sugar sales through ration shops – the levy burden at this point is 20 per cent of production – the mills must not grudge the government overseeing that farmers get a fair deal in the decontrolled regime. Let under a globally accepted formula, the farmers be given a fair share of the sale proceeds of sugar and its byproducts.

First Published: Tue, July 27 2010. 00:55 IST