Experts disappointed after UP keeps sugar SAP unchanged

The Uttar Pradesh government maintains sugarcane state advised price at Rs 280 per quintal. But have given a purchase tax waiver of Rs 2 per quintal. In an exclusive discussion on CNBC-TV18, SP Tulsian, sptulsian.com and Abhinash Verma, DG, Indian Sugar Mills association (ISMA) expressed their views on the same.

Also Read: UP govt maintains sugarcane SAP at Rs 280/quintal

Below is the verbatim transcript of their discussion on the channel SP Tulsian, sptulsian.com Q: SAP prices stay as it is at Rs 280 a quintal. However, there has been some relief by way of the purchase tax waiver. Do you think it is going to mean anything? A: I think purchase tax waiver is a peanut for millers. I don’t see any reason for the SAP to get increased, but since this is the political survival for Samajwadi Party (SP), in no position would they have gone ahead and lowered the SAP that they fixed last year. The political wisdom has prevailed and commercial sanity has been kept on the backburner which is usual in case of political decisions. Talking specifically on Rs 280, due to the commercial bargain element creeping in again, millers have also said that they cannot really pay beyond Rs 225. While if you talk to them unofficially, they all say that Rs 250-255 per quintal seems to be feasible. So now, government will not sit and decide with the millers and will persuade them that may be in some way or the other they will get compensated for this dent of about Rs 25 per quintal. This is a good beginning but still the political compulsions have prevailed in fixing the SAP of Rs 280. Q: We have seen one decision being taken by the state government. We also saw meeting take place at the centre today. In 2006 and 2007 when a similar crisis had erupted the centre had given out three or four different incentives, one was export incentive, the other was an interest free loan where the centre bored the interest for four years. According to sources, that could be one way that the centre may intervene. Do you believe that could be enough to resolve this issue? A: I don’t think that centre really has this problem on their agenda because ultimately this could only exist on their agenda if they want to settle some deal with the SP. Secondly, I don’t think that millers are really interested in availing the interest free loan. People want to take the case of strong mills, I am talking of the top 10 millers in UP where the commercial viability must exist. If you are availing a loan, it is not a grant or not a subsidy, you have to pay that money may be after three or four years. When you talk to mills or the company, they say commercial viability must get established. They are not interested in availing any kind of interest free loan whether for a tenure of three years or four years. Thirdly, the minister has been saying that interest subvention can be given by the sugar development fund (SDF). All these ideas are just a wishy-washy. I don’t think that centre is really serious in tackling this issue because this issue is only confined to the UP state. I don’t think Karnataka, Andhra Pradesh or Tamil Nadu have these kind of problems.
Abhinash Verma, DG, ISMA Q: Purchase tax waiver is one relief that has come in from the UP government but SAP stays at Rs 280. Is this a relief or a disappointment? A: It is 100 percent disappointment, there is no relief. This is same as last year. There was no purchase tax last year as well and this is just Rs 2. It is peanuts, it doesn’t mean anything at all. It is very upsetting, totally disappointing. I don’t think this is acceptable at all to the industry and I don’t think the industry will now come back to start their factories. Q: This has been the first move made by the state government, announcing this purchase tax waiver of Rs 2 a quintal even though it may not amount to something. But do you believe this is really the start of a negotiation process that we are now headed towards a climax? A: In the interest of the industry, in the interest of the farmers I would like to believe this is the beginning of negotiation. I hope it will lead us to some good solution. Q: What exactly will this purchase tax waiver mean even though its peanuts but can you quantify it? What relief will it be as far as industry is concerned? A: The industry is supposed to pay about Rs 2 per quintal of sugarcane as the purchase tax to the state government. We have to shell out Rs 280 plus another Rs 2, about Rs 282, we had to give at the gate including taxes to the farmers as well as the state government. So, now that Rs 2 out of Rs 282 has been waived off – that is all.


Deepak Guptara, Secretary, UP Sugar Mills Q: We have seen one forward decision which is the purchase tax waiver. However, as far as the SAP is concerned, the government is not relenting, not budging, keeping it to Rs 280 per quintal, will the sugar mill owners be disappointed? A: Yes indeed. We were expecting the government to take stock of our paying capacity which remains at Rs 225 a quintal but unfortunately they have gone ahead and declared this price. We once again reiterate that at this rate of Rs 280 we stand to lose more than Rs 6 a kilogram on the difference between the production cost and the cost of sale and the selling price. So, for another year we will have huge carryover losses. Last year’s losses of Rs 2,300 crore plus will be carried forward and added on to this year’s loss. We could look at a situation over Rs 10,000 crore dues to the framers by March 2014. This will make the whole situation very complicated. In order to avoid this kind of unfortunate event, we are requesting the state government to please take into account our paying capacity which limits itself to Rs 225 a quintal. Q: They have announced a purchase tax waiver of Rs 2 per quintal. ISMA has come out and said that amounts to nothing. Infact they have called that peanuts. Does it make any difference to your situation? A: Any relief, we cannot term as negative, it is a positive step. However, this is too less and it will hardly make a dent in thousands of crore of losses which is staring us in the face in case the mills are run and we are made to pay at Rs 280 a quintal. So, this is not going to make an impact at all. We are requesting the government to consider the difference between the paying capacity and the announced prices and make good at least for this season to help the industry out of its severe financial crisis which has been going on for the last three, four years. The cane prices have been increased by 70 percent against the sugar price increase of just 8 percent. We are making huge losses and Rs 6 per kilogram loss is what we are contemplating if we go ahead with this rate. Q: In terms of other viable options if it is not a direct subsidy intervention by the UP state government, what could be the other options that would help alleviate some of your pain? A: The paying capacity of business has to be kept in mind. Any solution that we need to work out will be based on the paying capacity of the mills beyond which we cannot pay at all. We are not against any kind of sop. Rs 2 is not a negative step but is too small a sum where we are looking at losses of over thousands of crore.