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The Commerce Ministry is in agreement with the new sugar subsidy scheme proposed by the Food Ministry which is linked to production of sugar cane.
The new scheme is to replace export subsidies that are disallowed under World Trade Organisation (WTO) rules and have given the country a lot of trouble recently at the multi-lateral forum.
“We have gone through the cabinet note circulated by the Food Ministry and given our green signal to the new sugarcane subsidy scheme which seems to be in tune with WTO norms,” a Commerce Ministry official told BusinessLine.
The Food Ministry has circulated a cabinet note for inter-ministerial comments on the new scheme reportedly proposing direct payment of ₹47.50 a quintal to growers out of total cane price of ₹230 as production subsidy for 2015-16 season.
“As long as sugar subsidies are linked to production and India can prove to WTO members that it has no connection with exports, these cannot be challenged,” the official said.
However, the government has to ensure that total production subsidies to cane growers do not cross 10 per cent of the value of sugar production – another stipulation under the WTO.
The subsidy will be paid directly to farmers that supply sugarcane to mills that not only produce sugar but also ethanol and electricity, according to the proposal.
The Cabinet Committee on Economic Affairs (CCEA) is likely to take up the proposal soon, the official said.
For the last two years, the Food Ministry has been announcing export subsidies for raw sugar leading to a lot of flak at the WTO. The subsidies were announced mainly to reduce the domestic glut and help millers pay cane arrears to farmers which stood at ₹14,000 crore at the end of August.
In February this year, the government raised the export subsidy for raw sugar to ₹4,000 a tonne for the 2014-15 season for up to 1.4 million tonnes (mt) of sugar, leading to a lot of protests from sugar exporting countries.
Fearing that India may be dragged to dispute by one of the agitating members at the WTO, the Commerce Ministry advised the Food Ministry not to extend sugar export subsidies in the new sugar year that started in October and instead come up with a WTO-compatible scheme.
There is a carryover stock of about 10.2 mt of sugar this season (started October) because of supply outstripping demand, according to industry estimates.
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