India is set to consider relaxing controls on the sugar industry, a minister said on Monday, as the prospect of high output this year creates the conditions for liberalisation without a sharp rise in prices. The world's biggest sugar consumer has been exploring options to free up the sector from various controls, hoping to reduce the cycle of oversupply and shortages that create increased volatility in local prices of the sweetener.
The policy could have international repercussions too, since in 2009 India had to import a large quantity of sugar, sending global prices to a 30-year high. India returned to exports in 2010/11. "We have responded to some queries of the finance ministry and now the proposal will be taken up by the cabinet by next week," food minister K.V. Thomas said on Monday.
New Delhi, keen to regulate prices in the second-biggest producer of sugar after Brazil, sets the price mills must pay farmers for sugar cane, and buys 10 percent of their output at a big discount for its welfare schemes. Some government officials in the nation of more than 1.2 billion people have argued that costs of the food subsidy would go up if the sector is liberalised, as the state would have to buy sugar from the open market for subsidised sale to the poor.
The food and farm ministries have proposed raising excise duty, or production tax, on sugar by 1.5 rupees per kg to make up for any loss. India also decides how much sugar mills can sell in the open market and at times imposes limits on stocks that large buyers can hold - all measures which some industry players say hurt farmers and mills. The south Asian country is likely to produce at least 25 million tonnes of sugar in the year through September, Thomas said, higher than a previous estimate of 24 million tonnes. India's annual demand is about 22 million tonnes.
Sugar mills in India produced 18.8 million tonnes of the sweetener in the first five months of the current sugar year, 60,000 tonnes less than a year earlier. India has turned into a net importer of sugar for the first time in two years, despite surplus stocks at home, as global prices have slumped, prompting millers to demand an increase in the import tax to curb cheaper imports.
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