The Union Ministry of Agriculture on Tuesday notified a fixed sugar export subsidy of Rs 2,277 a tonne for April and May, a 32 per cent fall from the previous level of Rs 3,300 a tonne. Producers and exporters have, however, protested against the cut, saying it will discourage exports.
Currently, the market is facing oversupply of about five million tonnes (mt), of which the government has allowed two mt to be exported this year.
Citing the draft of the gazette notification dated February 28, the Indian Sugar Mills Association (Isma) said, “The incentive shall be Rs 3,300 a tonne for February and March 2014 and thereafter, recalculated every two months after taking into account the average exchange rate of the rupee vis-à-vis the dollar during the seven days immediately preceding April 1, June 1, and August 1, for April-May, June-July and August-September, 2014, respectively.”
When Rs 3,300 a tonne of export subsidy was approved, the rupee stood at 62.44/dollar. Since then, it has appreciated to 60.32/dollar. Therefore, the subsidy rate should have been scaled up to about Rs 3,800 a tonne. As there was no criterion prescribed in the gazette notification of February 28, there couldn’t be any other position than to either retain the original rate of Rs 3,300 a tonne or increase it. Therefore, the downward revision in export subsidy was in violation of law, said Abinash Verma, director-general of Isma.
According to the notification, sugar mills entered into contracts with foreign buyers for export and import of the commodity and exported substantial quantities, expecting Rs 3,300 a tonne as the incentive on raw sugar exports. A change in position by the government, without any notice, was in contravention to the provisions of the gazette notification and led to confusion in the market and a sense of betrayal among millers, Verma added. The reduction in export incentives at a time when the domestic market was recording oversupply, would further deteriorate the condition of sugar mills, which had seen selling prices fall below production costs.
“Exports at Rs 2,277 a tonne of incentives will not be viable. While existing contracts will be executed, no new contracts will be signed for sugar exports,” said Narendra Murkumbi, managing director of Shree Renuka Sugars. This will lead to a rise in arrears, which stand at about Rs 10,000 crore across the country; of this, Rs 8,000 crore is accounted for by sugar mills in Uttar Pradesh alone.
Source: Business Standard
