The Indian government on Wednesday decided to extend the stock limit on sugar traders by another six months, up to October. The Cabinet Committee on Economic Affairs or CCEA approved the proposal as a measure to boost the availability of sugar in the open market and to prevent black-marketeers from cranking up prices by creating a false shortage.
Prime Minister Narendra Modi chaired the cabinet meeting in which the proposal was cleared.
"The Union cabinet has given its approval for extending the validity of the existing Central Order in respect of sugar for a further period of six months from April 29 to October 28, 2017," an official statement said.
This move will enable state governments to impose stock limits and licensing requirements in respect of sugar if needed, it said.
The government feels that "despite adequate availability of stocks for consumption in the current season, hoarding and consequent profiteering is anticipated due to drop in production over the previous year".
The sugar price rise appeared to be based more on sentiment than actual shortage, the government said. Fixing a stock limit is essential for regulating sugar supply and control of speculative prices.
Sugar is available for Rs 42-Rs 44 a kg, on an average, in most retail markets in India. However, prices are expected to be under pressure due to domestic fall, given the reported dip in production in top sugarcane growing states like Karnataka and Maharashtra.
According to reports in the Indian media, production is down by a whopping 60 lakh tonne in Karnataka and Maharashtra that are among the top three sugarcane producing states. Sugarcane cultivation is irrigation intensive and is easily hit in the absence of abundant water supply. Both these states have been reeling from drought for the past two years.
The other major sugarcane producer, the north Indian state of Uttar Pradesh, had improved production this year, but the recovery accounts for only 16 lakh tonnes. The Bharatiya Janata Party-led Uttar Pradesh state government is trying to push sugar mill owners to pay the Rs 4,000-crore arrears it owes to farmers in a bid to ease farming distress.
The Indian sugar industry, however, has been allaying fears of a shortage. Indian Sugar Mills Association (ISMA) director general Abinash Varma was quoted in news reports as saying that India will tide over the production gap with a mix of 'domestic stocks and imports'. ISMA represents non-cooperative private and public sugar mills in India. India yields an average of 250 lakh tonnes of sugar every year and is its second largest producer in the world after Brazil.
Currently, there is a stock limit of 500 tonnes and turnover limit of 30 days for sugar traders in the country with the exception of the eastern state of West Bengal. The stock limit for traders in West Bengal is 1,000 tonnes.
The country's sugar output is estimated to fall for the second consecutive year to about 20 million tonnes in 2016-17 season (October-September), much lower than the annual demand of 24-25 metric tonnes.
To boost domestic supply, the government has allowed duty-free import of 5,00,000 tonnes of raw sugar till June.