Sugar prices seen going up by Rs2-3 per kg

The decision by the Narendra Modi-led NDA government at the centre to raise the import duty on sugar to 40 per cent from 15 per cent is expected to result in a minimum increase of Rs2-3 per kg in the consumer price of the sweetener.

A hike in import duty on sugar will make imports unviable while making it possible for the industry to raise prices in the domestic market from the current level of around Rs39 a kg, say analysts.

The decision to hike import duty and increase the quantum of interest-free loans to sugar mills by Rs4,400 crore, announced by minister of food and civil supplies Ram Vilas Paswan on Monday, comes ahead of the assembly elections in Maharashtra, a key sugar producing state (See: Govt to hike sugar import duty, raise interest-free loan limit).

The BJP-led government at the centre also decided to continue the subsidy of Rs3,300 per tonne for raw sugar export till September 2014 and announced a doubling of the ethanol blending level in petrol to 10 per cent and extension of export subsidies till September.

Besides, the government offered to extend the duration of repayments of interest free loans made to mills against excise duty to five years from three years.

While the focus is on Maharashtra, which goes to polls in three months, the condition attached to the sops is in keeping with the spirit of the commitment made by the BJP to cane growers in western Uttar Pradesh during the Lok Sabha polls.

The pre-poll sop for Maharashtra will, however, come at a cost to the consumers, who are already at the receiving end with rising food prices.

All these sops, however, are tied to industry agreeing to clear all dues to sugarcane farmers, which currently stands at Rs11,000 crore.

The proposed relief to sugar mills will be implemented once mill owners give guarantee to repay farmers, Paswan said.

Meanwhile, sugar production in the country so far in the current season ending September is estimated at 23.7 million tonnes, marginally lower than the previous year's output but higher than domestic consumption of 23 million tonnes.

Sugar stocks at the end of current 2013-14 season stood at around 7.5 million tonnes.