The Hindu : Business : Centre's measures sweeten prospects for sugar units

Online edition of India's National Newspaper
Wednesday, Sep 15, 2004

Business

Business

Centre's measures sweeten prospects for sugar units

By Our Corporate Reporter

CHENNAI, SEPT. 14. The recently announced measures by the Union Government for the sugar industry have been well received by industry circles. These include the linking of statutory minimum price (SMP) to 9 per cent base recovery and the slashing of interest rates on Sugar Development Fund (SDF) loans to 4 per cent from 9 per cent. According to the rating agency, CRISIL, the linking of cane price based on average recovery rather than peak recovery would result in a decline in the raw material cost as the payment is linked to average rates of recovery. The reduction in interest rates on SDF loans would favour the emergence of integrated sugar complexes.

Further during the periods of cane shortage sugar mills can process the imported sugar as the Government has liberalised the import of raw sugar. This would ensure higher capacity utilisation. The rating agency believes that these measures were aimed at addressing the weaknesses in the industry in terms of pricing of cane and the mills' capacity utilisation rates and modernisation levels. These steps need to be followed by full decontrol of sugar sector as this would significantly improve the prospects of farmers and mills alike, the agency feels.

The announcement on cane pricing removes the anomaly of linking cane prices to peak recovery rates, which are about 0.3 percentage points higher than the average recovery rate of around 10 per cent.

Also, from the 2004-05 (October to September) sugar season, the SMP will be linked to 9 per cent recovery as against 8.5 per cent earlier. While all these measures are steps in the right direction, CRISIL believes that total liberalisation of sugar industry is critical for realising the full potential of this large agro industry.

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