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Friday, December 04, 2020

Govt incentives across sectors but bitter reality check for sugar

Mills are yet to get over Rs 5,000 crore of export assistance payments announced more than a year ago

Written by Harish Damodaran | New Delhi | Updated: November 17, 2020 8:24:01 am
Govt incentives across sectors but bitter reality check for sugarIn Uttar Pradesh, where crushing operations for 2020-21 have already commenced, mills are yet to pay farmers Rs 5,800 crore-plus out of the total Rs 35,898.15 crore value of cane that they bought in the previous season.

Even as the Centre has announced production-linked incentives worth some Rs 2 lakh crore for a host of sectors to boost manufacturing investments, the sugar industry is complaining of huge non-payments against schemes notified more than a year ago.

The Narendra Modi government had, last year, provided an incentive of Rs 10,448 per tonne for mills to export sugar during the 2019-20 season (October-September). That “lump sum assistance” – towards expenses on marketing, internal transport, port handling and ocean freight – was notified by the department of food and public distribution on September 12, 2019.

The scheme, limited to a maximum admissible export quantity of 60 lakh tonnes (lt) for all mills, would have entailed a fiscal outgo of Rs 6,269 crore. The industry almost met the target, with about 56.5 lt of sugar getting shipped out in 2019-20, surpassing the previous record of 49.57 lt achieved in the 2007-08 season (see chart).

The 56.5 lt exports should have entitled mills to total payments of over Rs 5,900 crore. But actual disbursements, according to an industry official, have been hardly Rs 600 crore so far. The 2020-21 Union Budget made no provision towards sugar export assistance for the last season. Nor was any amount allocated under the supplementary demand for grants tabled in the recent monsoon session of Parliament.

    Sugar Exports  (lakh tonnes)



2007-08 49.57
2008-09 1.65
2009-10 2.35
2010-11 26.00
2011-12 33.90
2012-13 3.48
2013-14 27.82
2014-15 23.02
2015-16 16.70
2016-17 0.46
2017-18 6.32
2018-19 38.00
2019-20 56.50

“Mills responded positively to the scheme. The exports were made at paper-thin margins, even after factoring in the incentive (of Rs 10,448 per tonne). Not receiving legitimate dues for shipments undertaken many months back, despite submitting all the required documents in time, can be very frustrating. In many cases, the interest on bank loans due to the non-receipt of incentive payment has wiped out even the meager margins from exports,” said Prakash Naiknavare, managing director, National Federation of Cooperative Sugar Factories Ltd.

The export incentive scheme was designed keeping in view the all-time-high sugar stocks of 143.33 lt with mills at the start of the 2019-20 season, equivalent to over 6.5 months of domestic consumption. Exporting a part of the surplus was expected to improve the liquidity position of mills, enabling them to clear the cane dues of farmers. Exports did happen; opening stocks for the current season from October, too, fell to around 110.5 lt.

“We could achieve the highest-ever exports in any year, notwithstanding the Covid-19-induced lockdown. The government departments, especially food, shipping and home affairs, were most helpful. They ensured that the trucks containing sugar from the mills moved without any roadblocks and were further shipped out from the ports,” acknowledged Naiknavare.

Explained | Why the sugar industry desperately needs export subsidy this season

But the non-payment of incentive hasn’t helped at all. Mills today are faced with a serious crisis of liquidity, even as most of them get ready to crush cane for the new season post Diwali.

But it isn’t export incentive alone.

The Modi government had even earlier – on July 31, 2019 – notified a scheme for the creation of a 40-lt buffer stock of sugar. This stock was to be kept in mill premises, with the Centre bearing its carrying cost (in terms of interest, insurance and storage charges) for a full year from August 1, 2019. While the scheme’s estimated fiscal outgo was Rs 1,674 crore, actual payments here also have been in the region of Rs 300 crore.

In Uttar Pradesh, where crushing operations for 2020-21 have already commenced, mills are yet to pay farmers Rs 5,800 crore-plus out of the total Rs 35,898.15 crore value of cane that they bought in the previous season.

“From where can we pay? We are ourselves owed roughly Rs 2,400 crore of export incentive by the Centre and another Rs 280 crore as buffer stock subsidy. In addition, there are outstanding payments of Rs 900 crore from the UP Power Corporation against supply of co-generation electricity,” claimed a Lucknow-based industry spokesperson.

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