New Delhi: To help cash-starved sugar mills clear dues worth Rs 21,000 crore to farmers, the government Wednesday hiked import duty on sugar to 40 percent and scrapped the excise duty on ethanol made from molasses.
While India imports very small quantity of sugar, the scrapping of excise duty will give the millers Rs 5 per litre extra on ethanol they produce from sugarcane. The customs duty has been hiked from 25 percent to 40 percent.
The decisions were taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi, an official statement said.
This would prevent any imports in case the international prices of sugar were to depress further, it added.
The Cabinet also decided to remove "excise duty on ethanol supplied for blending". Presently 12.36 percent central excise duty is levied.
Ethanol produced from molasses generated in the next sugar season (starting October 2015) and supplied for ethanol blending would be exempted from excise duty. Price benefit would be passed on the to the sugar mills/distilleries.
These measures would significantly improve the adverse price sentiments in respect of sugar and also boost liquidity of millers, facilitating the clearing up of cane arrears, the government said.
"Both farmers and state governments had given some suggestions to ensure timely payment of cane arrears. The Cabinet has approved some of them to provide relief to cane growers," Food Minister Ram Vilas Paswan told PTI.
"The government is sensitive towards farmers and understands their problems," he added.
The minister said that no decision was taken on proposal to create buffer stock of sugar, but the issue is under consideration of the government.
Yesterday, Paswan had said that cane arrears stood at Rs 21,000 crore. Of this, about Rs 10,000 crore is in UP alone.
Industry body ISMA said the decision to hike import duty and remove excise duty on ethanol would help the millers only in the long run. It demanded that the Centre should buy 10 percent of sugar produced this year to help clear cane arrears.
In August last year, sugar import duty was raised to 25 percent from 15 percent, while in February 2015, subsidy was extended for exports of 1.4 million tonnes of raw sugar.
Sugar prices are depressed due to surplus domestic production in the past four years, the government said, adding that mills have been constrained for liquidity and are facing difficulties in clearing cane dues owed to the farmers.
"This has affected the incomes of 50 million sugar cane farmers. Similar conditions of subdued prices prevail in the global markets," ISMA said.
Apart from hike in import duty and removal of excise duty on ethanol, the government has decided to withdraw the 'Duty Free Import Authorization' scheme (DFIA).
Under this, exporters of sugar could import permissible quantities of raw sugar without any duty for subsequent processing and disposal.
The scheme was withdrawn to "prevent leakage of sugar made from such duty free imports in the domestic markets".
Similarly, the period for discharging export obligations under the Advanced Authorization Scheme for sugar would be reduced to 6 months to prevent possibility of any leakage into the domestic markets, it added.
Sugar production in India, the world's second largest producer after Brazil, is estimated to be higher than the domestic consumption for the fifth year in a row.
Production is estimated to cross 27 million tonnes in the 2014-15 marketing year (October-September), as against 24.3 million tonnes in the previous year. The annual domestic demand is about 24.8 million tonne.
Surplus output has led to fall in sugar prices. Ex-mill prices are currently ruling at Rs 23-27/kg in the country, while the cost of production is Rs 29-33/kg.
Indian Sugar Mills association (ISMA) Director General Abinash Verma said: "The decision to remove excise duty on ethanol would increase net realisation to sugar mills by around Rs 5 per litre of ethanol, which should incentivise some mills..."
Hailing the government's decisions to hike import duty on sugar and remove excise duty on ethanol, Verma said the benefits would be realised by the industry in long run.
"The immediate need to reduce the surplus of 35 lakh tonnes of sugar blocking almost Rs 10,000 crore of cash flows and the need to improve the current ex-mill sugar prices which are at its lowest in the last 6 years will not get addressed by the above decisions," Verma said.
The ISMA DG said the Centre should "quickly decide" on the industry's request to buy out 10 percent of current year's sugar production.
"Only this step will help the industry come out of the crisis in the short run and ensure that a major portion of cane price arrears of farmers are cleared before the start of the next sugar season," Verma said.
Cane arrears to farmers have touched Rs 21,000 crore as sugar mills are facing difficulty in making payments due to low sugar prices and high cost of production.
