Sweetness still eludes sugar sector in India: CARE Ratings

CARE Ratings`s research report on sugar sector. 

Sugar industry is the second largest agro‐based industry after textiles in India and provides livelihood to over 50 million farmers and their families. Spread across the rural heartland, it has been contributing directly to the economic sustenance and development of the rural population, however, its own economic sustenance at present is very precarious with most sugar companies reeling under huge debt levels and mounting losses.

Decontrol of the sugar sector

The government has been trying to bring in reforms in the sector for a very long time and had setup various committees in the past to suggest ways to improve the fortunes of the sector. The most recent report was submitted by Dr Chakravarthi Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, in October 2012. It suggested various path‐breaking measures to enhance the efficiency and growth of the sector. Taking cues from the same, the government has partially relaxed control over the sugar sector by lifting the levy obligation of 10% and abolishment of the regulated release mechanism. This means there will be no obligation for the sugar companies to sell 10% of their production at cheaper rates in order to cross‐subsidize PDS sugar consumers. Furthermore, the sugar companies will be free to sell their entire production as per the market demand supply scenario. The sugar industry will surely benefit from these twin measures and is expected to reduce its losses by around Rs.3000 crore on lifting of levy obligation alone.

Although, abolishing the regulated release mechanism has resulted in a steady decline in the prices in the short run as a lot of sugar companies, who are facing pressure on account of mounting cane arrears or redemption of their debt obligations, are offloading their stocks. This, however, is expected to change once the festive season begins in October.

However, as Ms Swati Agarwal, CGM & Regional Head North, CARE says, “the partial deregulation is only one of the many steps required to enhance the viability of the sector and this limited relief will not be able to cure the misery of the sugar sector which continues to reel under heavy debts and losses.”

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