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The Union Cabinet will take a final call on the proposal to hike minimum selling price (MSP) of sugar by ₹2/kg as recommended by a group of Minister (GoM) headed by the Home Minister Amit Shah on Wednesday.
According to sources, the ministerial panel has recommended revising the MSP to ₹33/kg. This is expected to come into effect from October 1, which is the beginning date for sugar season 2020-21.
Sources said that the proposed price revision has recognised two important cost elements – interest on term loans and depreciation. This will give additional benefit to sugar mills. It has also proposed to link the revision of MSP to FRP (Fixed and Remunerative Price) of sugarcane. This will help sugar mills to make payment to farmers without any problems. The date for the said changes was proposed for October 1 keeping in mind any change in FRP, sources indicated.
The GoM had various price suggestions to consider – ₹33/kg by NITI Aayog and ₹35/kg by the UP government. Sources said ₹35/kg will help mills with very high interest burden, while ₹33/kg will be good for mills with less debt or lower interest cost.
“The proposed revision will certainly help sugar mills, which in turn will help in clearing the dues of sugarcane farmers,” said Abinash Verma, Director General, Indian Sugar Mills Association (ISMA).
Pending dues to farmers
According to the Food Ministry, in respect of current sugar season 2019-20, out of total cane dues of about ₹66,934 crore on FRP basis, about ₹49,251 crore have been paid to sugarcane farmers and only ₹17,683 crore are pending, as on June 5.
On SAP (State Administered Price) basis, about ₹49,986 crore have been paid to sugarcane farmers and only ₹22,079 crore are pending out of total cane dues of about ₹72,065 crore. Thus, over 69 per cent cane dues have been cleared in respect of sugar season 2019-20. This season's arrears are comparatively lower than last year's arrears (of about ₹ 28,000 crore in May, 2019).
One of the reasons for building of arrears in the current season is the decrease in demand due to Covid-19 and nation-wide lockdown, which has reduced the consumption of sugar by around 10 lakh tonnes leading to lowering of revenue realisation of sugar mills. But, with the lifting of lockdown and opening of economy, the sale of sugar would normalise and in the balance four months of the current season i.e from June-September, 2020, sugar mills would be able to sell around 84 lakh tonnes of sugar in the domestic market.
Another reason is that mills would be exporting about 10 lakh tonnes of sugar in the next four months. This would improve cash flows of sugar mills by more than ₹30,000 crore. The Department of Food and Public Distribution will release assistance to the tune of ₹1,100 crore on account of export and buffer subsidy to sugar mills this month. This would facilitate sugar mills in clearance of their balance arrears.
Closing stock of sugar on April 30 was at 235 lakh tonnes and total production during current sugar year is expected to reach 270 lakh tonnes.
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