Sugar Sector: Is it Sustained by Subsidies?

The sugar economy is highly regulated in India, starting from sugarcane pricing to the final production and distribution of sugar. Paying unduly high State Advised Price which is fixed higher than Fair and Remunerative Price is unsustainable by mills leading to cane arrears as well as cyclicality in sugarcane production thereby causing fluctuations in sugarcane production and pricing. The price of sugarcane is administered while price of sugar is market-driven and this disconnect has resulted in cane arrears to the tune of `12000 crores in 2013-14 and average subsidy of `2147 crores per annum, during the period 2007-08 to 2013-14. Besides paying farmers higher prices, the mills also subsidise the government through levy price to the tune of ` 2416 crores on an average per year over the period 2007-8 to 2012-13. These subsidies given by mills has put them in financial strain thus forcing the government to announce relief measures in the form of interest free loans to the tune of ` 6600 crores besides waiving off purchase tax, commission and entry tax on sugar. Mills have also received huge subsidies while setting up their plants. Finally, when stocks pile up due to excess availability over consumption, the government has offered export subsidy for raw sugar which have been questioned under multilateral trade rules. Overall it appears that sugar sector has been surviving with the help of subsidies. Hence policy must be addressed towards liberalising this sector from several controls and increasing the yield of sugarcane which has shown no improvement over decades. Inappropriate use of fertiliser and heavy irrigation under canal and lift irrigation command have made the soil alkaline adversely impacting productivity. Increasing productivity through scientific practices will enable sugar mills to obtain sufficient raw material at competitive prices and thus they can have more working days and reap economies of scale.

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Journal Article
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Indian Journal of Agricultural Economics, 69, 3
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JEL Codes:
Q170; Q11; Q13; H2

 Record created 2017-04-01, last modified 2020-10-28

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