How the govt plans to keep sugar price steady

Government allows duty-free import of 500,000 tonnes raw sugar till June 12. At present, India levies an import duty of 40% on sugar

The central government on Wednesday allowed duty-free import of 500,000 tonnes of raw sugar to maintain local prices at reasonable levels.

At present, India levies an import duty of 40 per cent on sugar. The import will be allowed under a Tariff Rate Quota till June 12. The Directorate General of Foreign Trade (DGFT) issued a public notice late on Wednesday that applications will have to be made to three zones - east, west and south - for allocations.

The import shall be done with zonal quantity restrictions and will be open to only millers and refiners having own refining capacity. Applications for import must come online to DGFT from April 13 to 24.

“Considering the quantity of sugar available as opening stocks and production in the current season, it is estimated that there is adequate quantity for domestic consumption,” said Food Minister Ram Vilas Paswan.

The sugar industry seemed divided over the decision, with a section welcoming it on the ground that calibrated import will help check price rise. Others felt import was not needed, as domestic supplies were adequate.

“Allowing import of 500,000 tonnes will help keep prices stable and mills will continue to get an average price above cost of production. At today’s price, if raw sugar is imported, refined sugar will, considering all expenses, cost Rs 31,800 a tonne,” said Praful Vithlani, chairman, All India Sugar Trade Association.

The price includes import cost, port charges, freight from port to refinery and polarisation/conversion cost, and even cost of financing for three months. It is an average of Rs 4,000 a tonne lower than current charges. The cost is low because global prices have seen a sharp fall in recent weeks.

Millers and refiners will have to submit details on letter of credit to the zonal authorities and applications for separate zones have to be made separately to the respective zonal authorities. If the allocated quota is not utilised, the applicant will have to face a penalty, according to the DGFT notification.

Global prices jumped a little more than three per cent in early trade on news of the India import decision. Last year, India exported a little over 1.6 million tonnes (mt).

Sarita Reddy, president of the Indian Sugar Mills Association, said the body believed there was no need to import.

“Nevertheless, we had also submitted that if the government still decides to import, not more than 4-500,000 tonnes may be needed and domestic millers be given the opportunity. It is heartening that the government has decided to give a chance for domestic millers to import...This will also stop any unnecessary speculation in the market,” she said.

Traders believe with this import till June, the new sugar season beginning October will open with a carry-forward stock of 3.5 mt, more than the festival month consumption of 2.5 mt. “The Centre as of now is being cautious with the import but might have to review its situation later,” they said.

The impact on consumption due to the Centre’s decision to stop the subsidy that it gave to states for distributing sugar at ration shops will also need to calculated, to decide further on import. Sugar production in the 2016-17 season is likely to fall to 20.3 mt, down from 25.1 mt a year earlier, as drought hit output in several parts of Maharashtra.

Local prices have risen eight percent from a year before, in expectation.

Photograph: Reuters