The Union Cabinet chaired by Prime Minister has approved a Rs. 8500 Crore bailout package for the distressed sugar industry in the country.
India is world’s second largest sugar producer after Brazil with production of around 20-25 million tonnes of sugar every year. The sugar production was 25.13 million tonnes in 2015-16 sugar season (sugar season ~ October to September); 20.2 million tonnes in 2016-17, 25 million tonnes in 2017-18 and is expected to be around 30 million tonnes in 2018-19. Currently, UP is India’s foremost sugar producing state and it is likely to maintain this position for the next two years. Maharashtra is on number 2 in production of both sugarcane as well as sugar.
The bumper harvest of sugarcane has created problem of plenty for already troubled cane farmers, sugar mills as well as governments at centre and state. The sugar mills need to buy cane from farmers at state advised price (SAP) but have to sell their produce at either marginal cost above production or in loss. Thus, higher price purchase of sugarcane but low price sale of sugar in open market creates stress on sugar mills and they are unable to make payments to farmers. This leads to accumulation of arrears.
Though government decontrolled sugar industry partially in 2013 and allowed them to sell their produce in open market, the sugar industry faces a bizarre problem that price of its raw material (cane) is fixed by state and central governments as State Advised Price (SAP) and Fair and Remunerative Price (FRP) respectively. The government supported cane prices are attractive to farmers, but loss due to any fall in the prices of sugar in open market has to be borne by the sugar industry. Further, absence of infrastructure for ethanol production makes sure that the surplus production of sugarcane is not optimally absorbed.
This package announced on June 6, 2018 includes Rs. 4500 crore soft loan for building ethanol production capacity and Rs. 1540-crore production-linked direct payments to cane farmers by sugar mills. Further, government has also hiked import duty on sugar to curb the problem of plenty. Government has also decided to create some kind of stock of sugar.