Cabinet Clears Rs 6,268 Crore Sugar Export Subsidy
White sugar is displayed in a sack as it is sold in a grocery store in Mumbai, India. (Photographer: Shirish Shete/Bloomberg News)

Cabinet Clears Rs 6,268 Crore Sugar Export Subsidy


The government announced a Rs 6,268 crore subsidy for export of six million tonnes of sugar during the 2019-20 marketing year starting October in order to liquidate surplus domestic stock and help mills in clearing Rs 15,000 crore worth of arrears to farmers.

The decision was taken at a meeting of the Cabinet Committee on Economic Affairs headed by Prime Minister Narendra Modi. "We have taken an important decision in the interest of sugarcane farmers. The cabinet has approved export subsidy for six million tonnes for 2019-20," Information and Broadcasting Minister Prakash Javadekar told reporters after the cabinet meeting.

A lump sum export subsidy of Rs 10,448 per tonne will be given to sugar mills in the 2019-20 marketing year (October-September), costing the exchequer Rs 6,268 crore as subsidy, he said.

This will benefit millions of farmers in Uttar Pradesh, Maharashtra and Karnataka as well as other states, he added. The government is providing subsidy for export of five million tonne of sugar for the current 2018-19 marketing year.

Even in the ongoing marketing year, the centre is providing a subsidy of around Rs 11,000 per tonne for export of five million tonne of surplus sugar. This doleout has been objected to by other sugar producing nations like Brazil and Australia at the World Trade Organization.

Also read: Government Eases Local Sourcing Norms For FDI In Single-Brand Retail

In a statement, the government, however, asserted that the export subsidy on sugar is WTO compatible and as per the Agreement on Agriculture. The lump-sum export subsidy will be provided to millers to meet expenses on marketing costs including handling, upgrading and other processing costs as well as international and internal transport and freight charges.

The nodal food ministry will later allocate export quota to individual mills.
The subsidy would be directly credited into farmers' accounts on behalf of mills against cane price dues and subsequent balance, if any, would be credited to mills' account, the statement said.

It also said the surplus stock would have created a downward pressure on ex-mill sugar prices, affecting liquidity of mills and mounting of cane arrears.

Hailing the decision, National Federation of Co-operative Sugar Factories Ltd. Managing Director Prakash P Naiknavare said, "This is a good decision taken at a right time. There is an inventory of 43.5 million tonne in the country. Unless exports takes place, there is no way out. Now the ball is in the court of the industry how best they utilise this."

He said the export subsidy for the current year was around Rs 11,000 per tonne, which was linked to crushing of sugarcane. However, the export subsidy announced for 2019-20 at Rs 10,448 per tonne is linked to marketing and other expenses, which is WTO compatible.

Meanwhile, the Indian Sugar Mills Association said the move will not only reduce the surplus sugar inventory next season, but will also give additional cash flows to the tune of around Rs 18,000 crore, including the subsidy amount.

"This will help the mills reduce carrying costs and interest burden as also help them to pay cane price to farmers on time. With an expected global deficit next year of around four million tonne, the timely announcement of India's export programme... will enable Indian millers to export the six million tonne," it said in a statement.

India is facing a glut situation in sugar owing to record production during the current 2018-19 and the previous year. In the current year, sugar output is estimated at around 33 million tonne, as against 32.3 million tonne in 2017-18.
As a result, the government estimates that opening stock of sugar would be at an all-time high of around 14.2 million tonnes on Oct. 1 against the normative requirement of around five million tonne.

India's annual domestic demand is 26 million tonnes.

Also read: Sugar Producers Say Export Subsidy Will Help Ease Glut, Lift Prices 

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.