The Hindu : Business : A bitter pill for small units

Online edition of India's National Newspaper
Saturday, May 08, 2004

Business

Business

A bitter pill for small units

By K. T. Jagannathan

CHENNAI, MAY 7. The State Government can fix or `advise' a cane price that is above the SMP (statutory minimum price). So said a five-judge constitution bench of the Supreme Court in a 3-2 verdict, allowing special leave petitions filed by the Uttar Pradesh Government challenging an interim order of the Allahabad High Court on December 11, 1996. If the timing of the order has upset the political applecart when the nation is mid-way through Parliamentary elections, the crucial pronouncement in the judgment has shell-shocked the sugar industry, which has shown signs of looking up.

There are, at present, at least three kinds of cane pricing. First one is the SMP, fixed by the Centre based on the recommendations of the Agricultural Prices Commission and its successor-outfits. Then comes the Clause 5A price under the Sugar Control Order. This allows for additional payments based on set terms. Then comes the SAP (state advisory price). This is fixed, nay advised, by the State governments based on their own parameters (read political). General's wish is general's command. So, SAP, invariably, proves an order and not advice. Any way, when there is a Clause 5A price, where is the need for SAP?

Sugar is a highly controlled commodity. There is control on the input side arising out of SMP, SAP, Clause 5A price and the like on cane. On the output front, there is restriction by way of free-sale release, levy sugar and what not. Ironically enough, the price paid to the industry for levy sugar is based on SMP and not on SAP. Ipso facto, it is clear that SAP has no legitimacy in the levy sugar price.

There is another side to these prices. They are supposedly based on certain scientific parameters. More often than not, however, politics (both national and regional) drive these prices. Not surprisingly, one sees, at least in the last two years, politicisation of even SMP. The Supreme Court judgment reported in the press has enveloped the sugar mills with a sense of dismay. "It is a retrograde judgment," said a sugar industry captain. Even as they await the copy of the judgment, the industry is hoping that the Supreme Court has inserted some riders as it upholds the right of the State governments to fix cane prices. "If they (States) are given unbridled powers, they may not fall into any kind of discipline," he added. Willy-nilly, cane pricing is highly politicised. As a consequence, they are driven by adhocism. A cursory reading of reports on the Supreme Court judgment in this instance is enough to convince one and all that the sugar industry will become a permanent prisoner of adhocism (should we say politicians?) by this latest order. Surely, industry captains are a worried lot. What is the way forward? Take the case of Tamil Nadu where the State Government has not fixed any SAP for a while. Not that it has become control-shy. For one, private sugar mills have challenged the SAP in the court. For another, the financial health of co-operatives and public sector sugar mills has left the State Government to give a go by to SAP.

Given this backdrop, private mills have entered into working long-term arrangements with growers, in some cases in tandem with banks, and have smooth mutually beneficial existence. The ideal thing is to let mills and growers sort out the pricing issue. But the reality on the ground is different. And, the Supreme Court order is bound to make the ground reality murkier.

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