The sugar industry is shocked to read the article on the reliability and accuracy of the sugar industry’s accounting practices (“Are sugar mills really doing badly?” by Tejinder Narang, Business Line , October 25). It talks about the bleak prospects of the country’s sugar industry, especially the Uttar Pradesh sugar mills, in the new sugar season (2013-14) due to huge losses and cane arrears.
The author casts aspersions on the reliability of the audited books of the sugar industry which, he feels, could be manipulated to hide actual profits, pocket financial assistance from State governments and restructure loan liabilities with banks. He writes that “it remains unclear whether industry is actually in loss or the books are reflecting losses for aligning them with SAP audited reports Red numbers perhaps may help in extra financial support from the States and for restructuring their liabilities to the bank”.
No cooking up
Such a statement not only shows the sugar industry in bad light, it casts doubts on the integrity of the auditors. The author is, perhaps, unaware that a company’s management usually hires the services of auditors from audit firms; it is not internally sourced. In such a scenario, it’s hard to believe that auditors can be talked into cooking up the audit reports of the company by the management. Submitting inaccurate and manipulated audited reports amounts to under-reporting of a company’s financials and cheating investors. It’s way too serious an allegation to level against the industry.
Root of the problem
The plight of the sugar industry, especially in Uttar Pradesh, the largest producer of sugarcane and second largest producer of sugar, is well documented. Both the print and the electronic media have highlighted the issues at length. The losses incurred by the industry on account of the high cost of sugar production due to the arbitrarily high sugarcane prices announced by the State government. Crisil Research, the country’s largest independent and integrated research house, has come out with a recent study that suggests that the sugar industry is expected to incur net losses of over Rs 1,000 crore in the 2012-13 sugar season due to the widening gap between sugarcane and sugar prices. Both sugar production and mill profitability will remain highly volatile as a result of this growing price disparity. The author should have been more careful and done thorough research before making these allegations against the sugar industry, the auditors as well as the government regulators.
Tejinder Narang replies:
ISMA seems to be of the view that if company books are audited, they cannot be questioned. The argument is, thus, based upon the sanctity of the audit. Auditing is not an absolute science. There are innumerable cases of deficiency in auditing mechanisms and intentions. NSEL is only the most recent; before that we had Satyam.
The sugar industry is within its right to argue arbitrariness in the fixing of State advised prices (SAP) of cane for mitigation of losses or improving profitability. But then, why is the government not listening to mills despite their high profile campaign supported by auditors’ reports? .
Business as usual?
ISMA believes that the Crisil report authenticates the state of affairs of mills in Uttar PradeshBut Crisil’s conclusion is again based on annual financial balance sheets furnished by the mills, prepared by accountants of the mills, and ratified by the auditors.
Moreover, if losses have been a perpetual feature of the sugar industry for the last three years, why does ISMA continue to project 25 million tonnes of sugar production, including about 7.5 million tonnes from UP? The UP mills claim that even banks are not willing to lend; yet farmers don’t seem perturbed that the cane produced by them will not be lifted or used. There are no protests by farmers on the anticipated default by the mills. We can surmise that every single tonne of cane produced will be eventually lifted and crushed on the basis of SAP payment.
Had ISMA projected 2014-15 sugar production of about 20-21 million tonnes, the distress situation could have been inferred. But that is not the case. It only means that ISMA itself believes it is business as usual.
(Verma is Director-General, Indian Sugar Mills Association)