In the run-up to the Budget, sources report the government may do away with the Rs 1.25/kg cess on sugar. It is learnt that Sugar Development Fund (SDF) the fund that enables sugar industry get loans along other financial assistance, may also be axed.
In an interview to CNBC-TV18 Abinash Verma, DG, Indian Sugar Mills Association (ISMA) said the news is negative for the industry and that ISMA has requested the government to continue with both cess and SDF. He added it has also requested the government to revise the cess to a lower rate rather than scrapping it completely.
According to Verma, the country has adequate stocks of sugar and that the prices will not shoot up significantly. He added the current pricing levels are not at an alarming level and the association will review production of sugar on January 25.
Below is the verbatim transcript of Abinash Verma’s interview to Manisha Gupta.
Q: What are you expectations from Budget and a couple of things like the sugar development fund and cess, if there is removal of that, if they are done away with? What is the impact on the industry that you see coming in?
A: Under the GST the government propose to subsume all the cess including on sugar. However, from the industry side we have requested the government that cess has been working very well for the industry because the sugarcane production sometimes jumps too much, sometimes it falls, as you mentioned that’s because of drought in Maharashtra and Karnataka, we are looking at lower sugarcane production. So sugar development fund has not only helped the industry grow expand, get good technology but has also helped the industry in times when we need to export sugar, we were unviable because of high cost of sugarcane. They have given us interest subvention, they have given has buffer subsidy, so sugar development fund and a lot of it has been great for the industry and that’s why we have requested the government to continue with sugar development fund and continue with the sugar cess but there might be something in the offing to subsume sugar cess. It may not be very great news to the industry.
On the other side, the government has increased the sugar cess from Rs 24 per quintal to Rs 124 per quintal from February 1, 2016 to get money to finance the production subsidy that they wanted to give to the industry last year. Now that production subsidy is over, so we have also requested the government that if they can withdraw that Re 1increase and bring it back to Rs 24 – that will also help the industry.
Q: Where do you see the prices headed because since we spoke about how the supplies are going to decline this time? A: Let me clarify that these reviews are very normal kind of process which is carried out not only by the government but by the industry also. We are also reviewing our sugar production estimate because every time we do it in the middle of the harvest, so we have a trend of yield and we have a trend of recovery and we will be doing it on January 25. We believe the government is also looking at reviewing the whole production estimate because some of the sugar mills have started closing in Maharashtra and Karnataka. So we will be coming out with our numbers on January 25.
Yes, the sugar price has improved in the last 10-15 days but you mentioned that the retail prices are around Rs 43. It was Rs 43 in September-October also. So it is not a worry that we are reaching these prices. It’s a recovery and getting back to the earlier situation. So I am not very alarmed at these prices. Yes, the day it has increased, it got the government worry but it jumped up very soon.
Q: What is your sense on the prices going forward because the government has reiterated yet again that Rs 40 per kg is the ceiling there. What is your sense on prices going forward?
A: I would believe that there is enough sugar in the country and therefore the prices should not shoot-up too much.
Our cost of production is higher as compared to last year across the country. Northern part of the country has seen a big increase in sugarcane price, southern and western part of the country, the capacity utilisation is low. So we believe that our cost of production is about 10 percent higher than last year and the government should allow us to get about 10 percent more sugar prices in this year. Therefore, we have got about Rs 37; we had got last year also and retail price of Rs 43 was acceptable, there was not big alarm anywhere, the consumers did not mind paying that price. So we believe the government should allow us to get about slightly higher prices, 5-10 percent above those levels. But it is difficult to make an estimation how the prices are going to behave in the next three-four months. We will be in a better idea when we do our production estimate review on 24 & 25.