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Govt plans another incentive package for sugar mills; MSP may be hiked to Rs 34/kg

The MSP of sugar produced by mills may be raised to Rs 34 per kg, while loan restructuring and similar incentives for cooperative sugar mills may also be included in this fresh incentive package

September 18, 2018 / 11:17 AM IST

The government may hike the minimum selling price (MSP) for over-supplied sugar mills, a week after an incentive package was announced under which it raised the price of ethanol.

The MSP for sugar produced by mills may be raised to Rs 34 per kg, while loan restructuring and similar incentives for cooperative sugar mills may also be included in this fresh incentive package, Business Standard reported.

Uttar Pradesh, India’s largest sugar producing state, had recommended an MSP of Rs 34/kg as against a demand of Rs 37/kg by many mills. The government has reportedly settled for Rs 34-35 per kg. These steps are expected to stimulate the open market for sugar in both wholesale and retail segments and support the industry, which has been dealing with continuous excessive production.

In early June, the government had introduced an MSP of Rs 29 per kg below which mills could not sell and stock limits similar to the release mechanism prevailing five years ago. This resulted in a creation of 3 million tonne of buffer stock for the year.

An increase in MSP will bring the price of sugar closer to its production cost. It may also help in quicker export of surplus sugar. If the package is approved, it will take the MSP of Rs 33-34 per kg much closer to the present market price of sugar.

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After last week’s package, the share prices of top 10 sugar companies according to market capitalisation rose 40 percent. Major players in the industry have been demanding an immediate rise of about Rs 7 per kg in MSP and a fixed export quota of 7 MT in FY19 to absorb the surplus. Before the start of the new season next month, surplus is set to touch 10 MT.

If MSP is hiked, producers will not need any subsidy from the government and their financial requirements will be taken care of. Mills will get the support they need and some burden will be transferred to customers, but the government will have to bear the subsidy.

A senior official told the paper, “Somebody has to pay either the government through direct subsidy or the consumer pays by way of higher retail price, which will still be lower than last year.”
Moneycontrol News
first published: Sep 18, 2018 11:17 am

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