Cabinet approves Rs 3,333 per tonne subsidy for raw sugar exports

The government on Wednesday approved a subsidy of Rs 3,333 per tonne for exports of raw sugar  to boost overseas sales and help the cash-starved industry to pay arrears to sugarcane farmers.

The decision was cleared by the Cabinet Committee on Economic Affairs (CCEA).

"CCEA has approved a subsidy of Rs 3,333 per tonne for promotion of production and export of raw sugar," Food Minister K V Thomas told PTI after the meeting.

"Based on the current exchange rate, the subsidy has been fixed at Rs 3,333 per tonne. This will be valid for February-March. The subsidy would be reviewed in April," Mr Thomas said.

The Finance Ministry will be consulted to ensure that the framework of the subsidy complies with World Trade Organization norms. The subsidy will be paid through an escrow account, Mr Thomas said.

Differences between the agriculture and food ministries forced the CCEA to defer the decision on this matter thrice this month. Even at the meeting today, there were discussions between the two ministers on the methodology of fixing the subsidy, sources said.

The Food Ministry had originally proposed a subsidy of Rs 2,000 a tonne on export of 4 million tonnes of raw sugar in the next two years, while the Agriculture Ministry favoured Rs 3,500 per tonne.

An informal group of ministries had met last week and agreed on a subsidy of Rs 3,500 per tonne on export of 4 million tonnes of raw sugar, costing the exchequer Rs 1,400 crore.

However, the Food Ministry moved a proposal on Tuesday, suggesting Rs 2,800 per tonne as subsidy.

The government has offered the export cash incentive to sugar mills as the industry faces a liquidity crunch with prices of the sweetener falling below the cost of production.

Arrears to sugarcane farmers have mounted to about Rs 10,000 crore from about Rs 3,000 crore at the start of the current marketing year in October 2013.

In December, the government had approved a Rs 6,600 crore interest-free loan to the sugar industry to help make payments to sugarcane farmers.

India, the world's second-biggest sugar producer, is sitting on huge stock of the sweetener.

Output in the ongoing 2013-14 marketing year (October-September) is expected to be higher at 25 million tonnes, against demand of 23.5 million tonnes.

At the current subsidy of Rs 3,333 per tonne, the government would incur an expenditure of about Rs 1,300 crore on the export of 4 million tonnes of raw sugar over the next two years. The burden will change if the government revises the subsidy rate in April.

The Indian Sugar Mills Association (ISMA) welcomed the decision, saying it would help improve their liquidity and clear part of the arrears to sugarcane growers.

"Though not much time is left for producing raw sugar in the balance crushing period during this season, we expect that this will give some of the much required liquidity to the sugar mills," ISMA Director General Abinash Verma said in a statement.

He said the arrears have crossed Rs 10,000 crore and may climb to Rs 15,000 crore in the next couple of months.