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Cabinet approves Rs 6,268 crore export subsidy for 6 mn tonnes of sugar

IBEF:  August 29, 2019

To absorb the surplus sugar, the Cabinet on Wednesday approved an export subsidy of Rs 10.44 per kg. This would enable mills to ship around six million tonnes (mt) of the sweetener in the coming season that starts from October.

The subsidy, which is expected to cost the exchequer almost Rs 6,268 crore (US$ 89.68 million), will give an additional cash flow to the tune of around Rs 18,000 crore (US$ 2.57 billion) to mills and help them clear cane dues. According to the government, the subsidy will be credited to bank accounts of farmers against cane price dues and are compliant with WTO norms.

According to sources, sugarcane dues accruing to farmers at the end of the 2018-19 season is estimated to be Rs 12,000 crore (US$ 1.71 billions) bulk of which is in Uttar Pradesh.

"We have taken an important decision in the interest of sugarcane farmers. The Cabinet has approved export subsidy of 6 mt for 2019-20," Information and Broadcasting Minister Prakash Javadekar said after the Cabinet meeting. This will benefit millions of farmers in UP, Maharashtra, and Karnataka as well as other states, he said. In the 2018-19 sugar season, the Centre gave a subsidy of Rs 10.50-11.55 per kg for export of 5 mt. However, of it, 3.7 mt (74 per cent) had been exported so far due to depressed market conditions. But for the next year, millers hope that the quota of exporting 6 mt of sugar will be fulfilled as the global market is facing 4 mt deficit. The export of sugar will also push up ex-factory prices marginally but may not lead to a big hike in retail price due to overhang of surplus.

India is expected to start the 2019-20 sugar season with an all-time high opening stock of 14.5 mt against a requirement of 3-5 mt. It will most probably end the season with a stock of 16.5 mt.

But with Wednesday's decision and earlier calls of creating 4 mt of buffer stock, the total surplus in hand at the end of the closing season could drop by 10-12 mt.

Abinash Verma, director general of Indian Sugar Mills Association, welcomed the move, saying 6 mt of exports will not only reduce the surplus sugar inventory next season but also give additional cash flow to the tune of around Rs 18,000 crore (US$ 2.57 crores), including the subsidy amount.

"Overall a timely decision of the government to assist the sugarcane farmers and the millers," said Verma. "This will benefit sugar mills in Maharashtra and Karnataka more as they are nearer the ports," said Prakash Naiknavare, managing director of National Federation of Cooperative Sugar Factories.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.