Sugar is subject to very severe cyclical swings. Alternate bouts of shortage and surplus make it a boom-bust industry. The current sugar scene looks all set for a glut, which is what lies behind the industry's hectic lobbying for a buffer stock. It will be recalled that the Narasimha Rao government had approved the creation of a 5 lakh tonne buffer stock, in the teeth of opposition by the former finance minister. With sugar output this season having already crossed 162 lakh tonnes, according to official estimates, compared with 147 lakh tonnes last year, the fear is that the 5 lakh tonne buffer created is not likely to be enough. As a short-term measure of relief, the agriculture ministry's suggestion that recourse be had to exports seems to be the correct one. Setting up and maintenance of a 10 lakh tonne buffer stock is estimated to cost around Rs 200 crore. In the Budget for 1996-97, a subsidy of only Rs 71.25 crore has been allotted for the maintenance of buffer stocks. Already, as a measure of relief to the industry, the government in June allowed sugar mills to sell 30 per cent additional freesale sugar over and above the already released quota for the month. Prices of S30, a grade of small-crystal white sugar, during July 1996 have averaged Rs 1,384 per quintal, 11 per cent higher than the price prevailing a year earlier, despite the bumper production. Nevertheless, the glut will mean that the inventory by September 30, could be as high as 80 lakh tonnes. Even a 10 lakh tonne buffer would then not be enough to keep prices firm. Exports are therefore a must if prices are to be prevented from dropping "" even though, since India is the world's largest sugar producer, and any large-scale export of sugar by India will cause world prices to weaken.
The longer-term solution lies in decontrol. The Indian sugar industry is probably one of the most regulated in the world. Every aspect of the business "" from the location and size of the plant to the price and quantity of sugar that can be sold "" is controlled by the government. The anomalies this creates are well-known. Take the current problem of over-supply. Sugar units have not been able to take advantage of the bumper crop, and high production has left the producers with accumulated stock and higher interest charges. Producers have been unable to raise money to pay cane growers, resulting in unprecedented cane arrears. The cyclical nature of the sugar industry will continue even if it is deregulated, but volatility can be expected to lessen if the industry is allowed to manage its own affairs. As things stand at present, total decontrol of the sugar industry may not be welcomed even by the industry, since prices would probably fall to levels below the current weighted average of the free-sale plus levy sale prices. The only beneficiary of decontrol would be the consumer.
