Bitter deal

A package of measures announced by the Centre to help the sugar industry and by extension the farmers, has stoked a sudden rise in the price of the commodity. The immediate rise was to the extent of Rs 2 a kg but it could be more in the days to come.

The prices may rise still higher if production declines because of a deficient monsoon. That means consumers have to brace themselves for more pain in the case of another essential commodity. The increase will be felt mainly in the open market prices. But since the public distribution system is ineffective in most places, what matters to the common consumer is the price ruling in the market. There is no good mechanism that regulates prices there, except a faulty demand-supply situation distorted by inefficient and even bad market practices and the persistent problems of the industry.

It is true that the sugar industry has been ailing. The package of measures, which includes a hike in import duty and extension of the period for interest-free loans and export subsidy period, will help the industry which has experienced serious cash flow problems. The steep duty hike from 15 to 40 per cent has triggered the price rise, though ironically not much sugar is imported now. The price rise is caused by the expectation of a future price based on the higher export duty. The concessional loans are meant to enable the mills to clear the farmers’ dues which are estimated to be in the range of Rs 11,000 crore. This has always been a serious issue with the mills frequently finding reasons to delay or deny full payment to the farmers. Cane farmers have committed suicide because of non-payment of arrears by mills. The government has made the implementation of the package conditional on the mills giving a commitment to clear the dues at the earliest.

The sugar industry is highly politicised, especially in the major producing states of Maharashtra and Uttar Pradesh. The governments and parties have tried to please both the mills, which wield financial power, and the farmers, a powerful voting block. Finding a balance between the interests of both has been difficult. Consumers have often paid the price for the wrong policies and practices in the sector and the politics that goes into them. The present package also may not be unrelated to the imminent elections in Maharashtra and the government’s political plans in UP.

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