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The model code of conduct that came into effect on Saturday with the announcement of poll schedule in Uttar Pradesh and four other states may delay Government's approval for further sugar exports.
This may put the millers in a spot as cane arrears are expected to start building up from middle of January, by which time their existing credit drawal limits would have been exhausted.
A relatively subdued trend in prices could create problem of short margins resulting from the value of sugar stocks falling from the levels at which the credit was originally extended.
It is important to maintain the positive sentiment to prevent any short margins from developing into a credit crunch just at the time of elections. UP has the largest area under sugar cane and it is country's second largest producer of the sweetener.
Politics is very closely linked with the sugar industry in UP, where the incumbent Chief Minister, Ms Mayawati, announced a 20 per cent hike in the prices of sugar cane for the current 2011-12 season, with an eye on the forthcoming polls.
“It (the model code of conduct) is a cause of concern. We may have to make a case before the Election Commissioner seeking approval for exports,” said Mr Abinash Verma, Director-General, Indian Sugar Mills Association (ISMA).
The industry has been demanding that the Government allow further exports to help millers take advantage of the global prices, which are now on a downward trend. This would have helped them their cash flows as cane crushing picks up.
The ISMA President, Mr Narendra Murkumbi, at the recent annual general meeting had expressed apprehensions on the poll announcement delaying export approvals. He had urged the Government to allow further exports of the surplus sugar starting end of December itself, so that the sugar can be physically moved from January.
In November, the Government had approved exports of one million tonne. However, the exports are yet to pick up as release orders for only 1.36 lakh tonnes have been issued as of December 23. The sluggish trend in exports is attributed to the wait-and-watch policy adopted by the main buyers such as Pakistan, Bangladesh and Sri Lanka in the context of declining trend in global prices.
Moreover, the Indian sugar now has to compete with the ones from European Union and Thailand, which have entered the market, Mr Verma said.
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