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Fate of UP sugar policy hangs in balance

Harish Damodaran

Hearing slated for July 12; outcome to affect major mills

Raw deal for some
Policy discriminatory not only against mills outside UP but also mills in the State that cannot invest Rs 350 crore.
Reimbursement of transportation charges up to 600 km from UP's border will hit mills in Maharashtra that are already getting Rs 100 a quintal lower compared to northern mills.

New Delhi , May 7

The Uttar Pradesh Government's Sugar Industry Promotion Policy, 2004 could well face an uncertain future.

With the Allahabad High Court admitting a writ petition challenging the Policy, along with impleadment applications filed by Bajaj Hindusthan, LH Sugars Factories and KM Sugars Ltd, all eyes are now on the final hearing scheduled for July 12.

The outcome is important for a number of UP-based sugar companies, from Bajaj Hindusthan to Balrampur Chini, Triveni Engineering and DCM Shriram Consolidated, which have invested heavily in fresh capacities factoring in the sops doled out through the Policy.

They include a 10 per cent capital subsidy on investment, remission of stamp duty and registration charges on land purchase, reimbursement of transport cost from factory up to a distance of 600 km from the State's border, reimbursement of additional cost of cane transport from out-centres to factory gate, remission/reimbursement of purchase tax on cane and cane society commission, and exemption of entry tax on sugar and administrative charges and trade tax on molasses.

These sops are to be given for a five-year period to any company that has invested a minimum of Rs 350 crore and for 10 years in the case of investment of Rs 500 crore or more.

SOPS `discriminatory'

The writ petition filed by the Shiv Sena leader Mr Kanhaiya Lal Gidwani has charged the Policy as violating Article 19 (1) (g) of the Constitution.

The sops would confer a cost advantage of Rs 180-200 a quintal of sugar, translating into a benefit of about Rs 19 crore per year for a factory that can crush 7,000 tonnes of cane daily.

"With these, the entire factory cost can be recovered in 6-7 years. The Policy is discriminatory not only against mills outside UP, but even mills within the State who cannot invest Rs 350 crore and are not eligible for the incentives," Mr Gidwani told Business Line.

He said the sop providing reimbursement of transportation charges up to a distance of 600 km from the UP border would cover major deficit markets such as West Bengal and parts of the North-East, "which will hit mills in my State (Maharashtra), that are already getting Rs 100 a quintal lower compared to northern mills."

The defence put forward by the beneficiary mills is that States are entitled to frame independent policies to attract investments.

And in this case, about Rs 5,000 crore investments in UP's sugar sector have been made taking into account the sops extended by the Policy.

The High Court has, besides admitting Mr Gidwani's writ petition filed on January 20, also allowed the impleadment application filed on April 17 by Bajaj Hindusthan, alleged to be a major beneficiary of the Policy.

In addition, it has taken into record the impleadment applications of the Pilibhit-based LH Sugar and the Faizabad-based KM Sugar, that have charged the Policy as discriminating against existing mills in UP.

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