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Harish Damodaran

Two years from now, stocks may be barely sufficient to meet domestic demand.

New Delhi , Sept. 20

THE Government has made it clear that the freedom given to mills to import raw sugar at nil duty under the advance licence (AL) scheme for re-processing and selling in the domestic market will, by no means, dilute their obligation to subsequently export white sugar.

All that has been relaxed is the "grain-for-grain" condition, which requires the imported raw sugar to be physically incorporated in the white sugar, to be exported within 24 months of undertaking imports. Mills can, instead, export white sugar processed out of domestically sourced sugar. There is no change in the basic stipulation of mills exporting one tonne of white sugar for every 1.05 tonnes of raw sugar they import.

But the question being asked by some industry observers is: would mills really be in a position to export white sugar two years from now? As per official estimates, the 2003-04 sugar season (October-September) began with opening stocks of 127.62 lakh tonnes (lt), though the trade puts this at only 115-116 lt. Even taking the official figure, along with expected production of 136 lt and domestic consumption of 180 lt, the season would close with stocks of about 84 lt.

During the coming 2004-05 season, production is slated to fall further to 125 lt. Even assuming domestic consumption remains at 180 lt, stocks on October 1, 2005 would be 29 lt, equivalent to less than two months' consumption requirement (against the norm of 2.5 months). While output may recover in the 2005-06 season, nobody expects it to rise beyond 150 lt. Again, assuming domestic consumption to be static at 180 lt, it emerges that as on October 1, 2006 the country will confront a nil, if not negative, stocks scenario.

How will mills, then, be able to export two years from now, when they would have stocks barely sufficient to meet domestic requirements? And if they actually meet their export commitments, what would be the impact on domestic prices?

These questions are relevant because during the current season, roughly 7.5 lt of raw sugar imports have been contracted under the AL scheme, mainly by private mills such as Dhampur Sugar, Bannari Amman, Sakthi Sugar and Shree Renuka Sugars. Of this, arrivals so far— which started around July— have been 2.5-3 lt. Besides, Maharashtra's cooperative sugar factories are scheduled to import another one lt, following the flexibility given now to mills to export on a "tonne-for-tonne" rather than "grain-for-grain" basis.

If the reported plans of other mills are included, the total raw sugar imports, against which the corresponding export obligation commences from July 2006, would be no less than 10 lt. And the exports would be undertaken at a time, when domestic shortages are likely to be pronounced. It is obvious that in these circumstances, the Government would not be averse to relaxing, or even doing away with, the export obligation.

A worse possibility would be if mills resort to large-scale imports of raw sugar at zero duty now, knowing fully that will eventually not have to export. If that happens, it would tantamount to misuse of the AL scheme, which will become a de facto avenue for importing sugar into the country at zero duty against the normal 60 per cent rate applicable on both raw and white sugar. A better way out, it is suggested, is to retain the existing "grain-for-grain" export obligation norm under the ALS scheme, while simultaneously allowing duty-free raw sugar imports up to a prescribed quantity of, say 10 lt. Alternatively, raw sugar imports under the open general licence (OGL) may be assessable to a lower duty than that on white sugar.

More Stories on : Agricultural Policy | Exports & Imports | Sugar

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