Centre defers move to impose customs duty on refined sugar

In a welcome move, the Empowered Group of Ministers (EGoM) has deferred the decision on imposing customs duty on imported refined sugar, thus keeping the Food Ministry proposal on hold for some more time. Unabated food inflation is said to be the principal reason for deferring any change in the tariff structure. So far, so good.

There is reason to believe, the Food Ministry is under pressure from the sugar industry which is aggrieved by a perceived mismatch between rising input costs and falling output prices. Without doubt, the sugar industry grievances are genuine. Open market sugar prices have declined in the last 3-4 months on expectation of a rebound in domestic sugar production next year that is 2010-11. Global sugar market has also corrected down from the peak of 27 cents a pound to the more recent 14-15 cents a pound in anticipation that India may not have to import.

There is apprehension that such low world prices would encourage larger import volumes (at zero duty) which may further dampen the already weak domestic sugar market sentiment.

While there has always been a need to regulate sugar import through an appropriate tariff mechanism, it would be risky at this point of time to tinker with the present tariff structure without strong reason or justification from a market fundamental (demand-supply) perspective.

The Food Ministry must explain the basis on which it has made the proposal for imposing customs duty. If the ministry has solid ground for expecting a strong rebound in domestic sugar production in 2010-11 it must come out with evidence. The industry circles have been talking about an imminent big expansion of sugar production (with forecasts of output rising to 24-25 million tonnes), but have shied away from producing any concrete evidence of such expectation in terms of acreage under cane or any other.

At this point of time, such rebound in production next season seems to be in realm of conjecture rather than based on hard facts or ground realities. If the Food Ministry has any evidence, it must promptly come out with it; otherwise, it cannot escape culpability of ‘talking the market' up or down.

For the same reason, at this point in time, no change in the ‘levy' obligation of 20 per cent is warranted. We have to wait for the acreage numbers and cane crop size to crystallise. Importantly, as the Food Ministry wants the levy obligation to be reduced to 16 percent as reported, then it appears the ministry expects that sugar production would be around 20 million tonnes (mt) next year, so that the government is able to pick up about 3 mt of levy sugar for public distribution system.

If sugar production is forecast or expected by the ministry at only 20 mt for 2010-11, then sugar prices are bound to rise sharply and India may actually have to import 3-4 mt to keep domestic prices under check. This flies in the face of Food Ministry proposals with the EGoM. Last three years, government estimates and forecasts went haywire making India a laughing stock in the world market and helping speculators make a killing. It is best to avoid a repetition. It is sensible to wait for more solid evidence of cane output and sugar production for 2010-11 to emerge instead of taking rash decisions, only to repent later.

source: thehindubusinessline