Sugar export subsidy likely to be fixed at Rs3,500 per tonne

A group of ministers has endorsed a proposal by agriculture minister Sharad Pawar to provide a subsidy of Rs3,500 per tonne on export of four million tonnes of raw sugar, involving an expenditure of Rs1,400 crore, in a move to boost sales and bail out the cash-strapped industry.

The CCEA had twice deferred the decision on fixing the export subsidy as the food ministry had proposed a lower subsidy of Rs2,200 per tonne against the Rs3,500 proposed by Sharad Pawar.

The difference was resolved at a meeting of Pawar with finance minister P Chidambaram and food minister K V Thomas on Friday.

Food minister K V Thomas said the Rs3,500-subsidy per tonne of sugar exported will cost the government Rs1,400 crore over a two-year period, against Rs800 crore under the earlier proposal of Rs2,000 per tonne subsidy.

The subsidy will be borne largely from the Sugar Development Fund under the food ministry and the subsidy amount will be reviewed after export of 2 million tonnes of raw sugar, he added.

The matter will now be placed before the cabinet committee on economic affairs (CCEA).

After factoring in the Rs3,500 per tonne subsidy, sugar mills could still lose around Rs1,000 per tonne considering the current raw sugar futures prices in New York, say analysts.

"At Rs3,500 per tonne subsidy, mills would still be making losses, but sugar can be exported. This is because mills' realisation from exports would be slightly higher than domestic sales, thanks to low local prices of sugar," Indian Sugar Mills Association director-general Abinash Verma had said last month.

India, the world's second biggest sugar producer, is sitting on huge opening stock of sugar.

The country is also expected to produce 25 million tonnes of the sweetener in the current (2013-14) marketing year (October-September), against demand for 23.5 million tonnes.

Sugar mills in India are faced with mounting cane price arrears they owe to farmers that has reached Rs10,000 crore from about Rs3,000 crore at the start of the current marketing year in October 2013.

The government had, in December, extended a Rs6,600-crore interest-free loan to the sugar industry to help them make payments to sugarcane farmers.