Sugar-coated votes

The decision to raise the price for cane to Rs 73 a quintal smacks of populism aimed at appeasing cane growers ahead of the parliamentary elections.

This impression is borne out by the fact that the decision was taken by Prime Minister Vajpayee himself, disregarding objections by the finance and food and consumer affairs ministries, which recognise the sugar industry's inability to pay a higher price.

Cane prices were raised twice in the last sugar season; once in the beginning and then midway, to compensate farmers for the drought.

Now that the drought is over, the continuation of the drought relief charge is untenable. But the government thinks otherwise.

Besides, the present cane price increase is unrelated to market conditions. Sugar prices have remained subdued for the past couple of years, due partly to over-production and partly to the industry's compulsion to offload larger stocks to prune mounting inventories.

Moreover, given the adverse market conditions, the sugar industry is finding it difficult to clear the current cane price arrears, estimated at a whopping Rs 4,000 crore.

So expecting it to make prompt payment on the basis of the increased prices is wishful thinking. Indeed, the central financial assistance packages worth Rs 2,563 crore, routed through the states and designed to enable the industry pay off these arrears, have failed to make any impact.

For, not many states opted to utilise these packages as these required the state governments to give up the practice of announcing still higher state-advised cane prices (SAP).

Thus, though the Centre had at least sought to factor in long-term cane pricing reform, the states are not interested.

What is really worrisome is that the government's move may not benefit farmers even as it ruins the sugar industry.

This is because some sugar units, notably those on the verge of closure, may be forced to shut down while many others may take the court route to avoid immediate payment of higher prices.

And, the cane price arrears are bound to swell, to the detriment of both the farmers and the industry. Under the circumstances, the best course for the government would be to leave the determination of cane and sugar prices to the market forces.

Such a policy would, additionally, pave the way for the industry and cane growers to settle for mutually agreed cane prices.