The sugar industry clamouring for control and intervention should set the alarm bells ringing in the corridors of power, notes Bhupesh Bhandari.
If you thought price controls, compulsory exports, diktats to banks, quotas, surcharges, and prohibitive import duties went out of fashion when India liberalised its economy 24 years back, you need to think again.
A section of Indian industry has started to demand these protective measures in order to survive. And they are serious about it.
A few days ago, two associations, one that represents sugarcane farmers and the other sugar mills, demanded price control on sugar. Sugar prices were decontrolled some years back.
Now, the associations want the government to fix a "minimum support price" for the commodity - of course the mills will be free to sell at a higher price.
The current sugar price, these associations said in a recent full-page advertisement, is grossly inadequate for them to pay the government-mandated price to farmers.
So, they want the government to set the minimum support price of sugar at Rs 32 to Rs 34 a kg, at which price they will be able to pay the farmers fully.
In addition, they want the government to make it compulsory for every mill to export 10 to 15 per cent of its produce, which should help shore up domestic prices.
However, there is a glut in the global sugar market right now and prices are low. So, the loss they make in exports should be made good by the domestic price, they have suggested.
In other words, the government ought to increase the minimum support price to account for that loss.
That's not all. The two organisations want the government to "advise" banks to convert half the working capital advanced to mills into term loans of seven years "at reasonable interest with a two-year moratorium".
This comes at a time when analysts have raised the red flag over the lack of autonomy for public-sector banks, and have cited it as one of the key reasons why a majority of them are trading at a discount to their book value.
These suggestions sure sound like from some other age, but let me tell you that the demand for state intervention to help save the sugar industry is on the rise.
Some mill owners have started to say that the old "monthly release mechanism" needs to be brought back.
Under that regime, the government used to decide how much each mill could sell in the open market every month.
This was done to keep prices on control, though the whole process was open to manipulation and abuse. The mill owners feel that sugar prices will firm up if this quota is brought back.
Still others have demanded intervention in another form. According to them, the difference between the price the mills are required to pay sugarcane farmers and what they can actually pay should be reimbursed by the government through a "stabilisation fund".
The corpus of this fund can come from a surcharge on sugar prices, which the government can collect and pass it on straight to the farmers.
That a section of the business community is clamouring for control and intervention should set the alarm bells ringing in the corridors of power.
If the industry wants the clock to be set back to the days of quotas and controls, it means something has gone horribly wrong.
Actually, this is what happens when reform is half-hearted and not taken to its logical conclusion.
If the country is serious about its manufacturing sector, this issue cannot be allowed to fester for so long. All talk of India become a global manufacturing hub is bunkum if a labour-intensive sector like sugar bleeds to a slow and painful death.
The problem of the sugar industry is quite straightforward. While the price of the output is decontrolled, that of the principal input, sugarcane, is tightly controlled.
For political reasons, it is very high - way beyond what the mills can pay, given the current low prices of sugar. As a result, arrears to farmers are huge.
There is substantial unrest in the sugarcane growing areas of the country.
Bajaj Hindusthan, the country's largest producer, has said that it will not run two of its factories in Uttar Pradesh when sugarcane is ready to be crushed in a month or so.
Balrampur Chini Mills too has decided to mothball one factory in the state. These are not easy decisions to make. Sugarcane farmers are a volatile lot, and the prospects of losing a whole year's crop can rouse passions amongst them. Still, more such announcements could come in the days ahead.
A solution to this imbroglio exists, in the form of the suggestion by the Rangarajan Committee to link sugar and sugarcane prices: higher the sugar prices in the market, higher the price farmers will get for their sugarcane and vice versa.
What is lacking is the political will to go ahead with it.
In these days, when nothing hurts more than charges of crony capitalism and everybody wants to be seen as pro-farmer, few would dare to tell the sugarcane farmers that their fortunes will be linked to those of the mills.
