Let the market prevail

Two positive developments have created a fresh opportunity for putting the Indian sugar industry on a sound commercial footing.

Four successive years of good sugarcane crops had led to oversupply and a fall in market prices, forcing the government to create a buffer stock of two million tonnes.

The industry is relieved that this year poor rains in the cane growing areas will restrict supply. This has already helped stabilise sugar prices and led to improvement in sugar companies' stocks.

But more importantly, the same modernising mood that is today prevalent among large sections of Indian manufacturing, is also touching the sugar industry.

Progressive sections within it are breaking ranks with the rest and saying that the industry should stop blaming the government and start doing what is within its powers, to set its house in order.

K N Bajaj, CEO of Bajaj Hindustan, has said the industry should stop complaining about being unduly 'politicised' as the government's policy of laying down uniform sugarcane prices creates a level playing field for all sugar companies and an opportunity for the more privative ones to go forward.

His recipe for a better future for sugar manufacturers is along classical lines. They should invest to grow to sufficient size. They should also invest in the manufacture of value added by-products that improve the economics of the entire operation.

This is the recipe for success in the chemicals industry where, the more you invest in the manufacture of by-products, the more profitable you get. Bajaj Hindustan is not a loner in this regard. Balrampur Chini and EID Parry have followed the same logic in their operations.

The Murugappa group, to which Parry belongs, had at one time almost decided to get out of sugar but the finances were eventually turned around through the by-products route.

Without such a road map, Indian sugar companies will not become globally competitive. The pressure to become so has till now been less than that on other industries as sugar has firm roots in agriculture and therefore trade in it is vitiated by both direct barriers and subsidies.

The government has mostly gone in for wrong medicines for the sugar industry, like seeking to increasingly subsidise exports so as to overcome the internal glut.

Not satisfied with an export subsidy which could rise to Rs 350 per tonne, the inter-ministerial group set up to rescue the industry has proposed still a subsidy of Rs 500 per tonne, which will take exports beyond two million tonnes and cost the Sugar Development Fund Rs 100 crore.

Though nothing can be expected at election time, the government should do what has been long overdue: decontrol sugar and free the industry.