THERE'S a bitter war brewing over something sweet. The Indian sugar industry is up in arms over the government's decision to continue unlimited import of sugar— despite a healthy domestic surplus—under the open general license (OGL) at a nominal duty of five per cent. As the issue hots up, domestic sugar barons are threatening a Tikait-style stir in Delhi if the Centre doesn't take steps to protect their interests.
The crux of the dispute: low duties on large sugar imports are disastrously impacting the domestic industry. Moreover, this year's sugar stock, say industry sources, stands at 55 lakh metric tonnes (MT)—20 lakh MT more than the buffer stock India needs, and equal to five months' consumption. Yet, spurred by a fall in global prices, 16.5 lakh MT of sugar—worth over Rs 1,500 crore in foreign exchange—has been ordered by importers under the OGL.
Interestingly, close to 70 per cent of the imports comes from Pakistan—mainly from mills owned by Prime Minister Nawaz Sharif, his close colleagues and relatives, and the Pakistan Army Welfare Trust . In fact, the extraordinary facilities and incentives provided to the sugar mills owned mainly by the ruling party leadership, have led to deep resentment and irate charges in other business and bureaucratic circles in Pakistan.
The heavy rebates offered to sugar exporters by the Sharif government, coupled with low freight rate and short delivery period, make Pakistani sugar sweeter for Indian importers. In 1997-98, Islamabad allowed a two-tier duty drawback system for sugar exports when global sugar prices dropped—the rebate totalled Rs 4,500 per MT, the highest in its history. Moreover, sugar exporters were also exempted from the excise duty of Rs 2,025 per MT, levied on sugar sale in local markets, making the total incentive on sugar export Rs 6,525 per MT.
The incentive obviously worked. Out of a total of 586,000 MT of sugar exported from Pakistan last year, 526,000 MT was exported to India. And Prime Minister Nawaz Sharif—who owns a number of major sugar mills in Punjab, including Ramzan Sugar Mills, the largest in Asia—has promised further concessions to sugar exporters during 1998-99.
On the Indian side, the sugar barons are obviously livid. How, they ask, can you murder your domestic industry by allowing cheap imports to flood the market? "Sugar was put under the OGL in March 1994, when there was a shortage in the country," explains a senior food ministry official. "But in order to sustain the process of liberalisation, and to honour regional pacts (under SAARC) aimed at promoting fair and free trade, we imposed no duties on import until this April, when a 5 per cent duty was imposed."
THE sugar industry, however, demands an import duty of 50 per cent and is piling up the pressure. Consequently, on November 30, Prime Minister A.B. Vajpayee hinted that the Centre was "considering" a hike in import duty. Jumping the gun, the sugar industry promptly splashed 'Thank You' ads in the newspapers. The next day, according to importers, the wholesale price saw a speculative rise of Re 1 per kg.
Which is small comfort to the sugar barons. Says S.L. Jain, director general of the Indian Sugar Mills Association (ISMA): "In '94, to tide over the crisis, we ourselves imported sugar and placed the entire amount at the hands of government agencies. We also organised private shops to sell sugar at Rs 3-4 less per kg than the prevailing market rates. But things are different today. India is the largest producer as well as the largest consumer of sugar in the world. Why do we need to spend our valuable foreign currency to import something we already have a surplus of?"
Opposition leaders led by Sharad Pawar, who has his roots in Maharashtra's sugar belt, were quick to side with the domestic lobby and raised a shindig in Parliament. Some coalition members of the government, like the farmer-friendly food minister Surjit Singh Barnala, also demanded that the import duty be raised immediately to protect the domestic industry.
Samajwadi Party general secretary and MP Amar Singh went further. In a press release, he cited newspaper articles to claim that not only were Nawaz Sharif and his cronies the main beneficiaries of the sugar exported to India, but Kundan Rice Mills, said to be India's main importer, had links with parliamentary affairs minister Madal Lal Khurana.
When contacted by Outlook, Khurana and Kundan Rice Mills denied any links. While admitting his mill had a contract to import 20,000 MT of sugar from the Pakistan Army Welfare Trust, Rajeeve Pandey, manager (finance) of Kundan Rice mills, dismissed allegations of any links with Khurana. "I've only seen Khurana on TV. I've never met him or talked to him." He also says the mill opened a letter of credit for only 2,500 MT.
Any preferential treatment that his company received from Pakistani exporters was because "unlike other traders, who delay payments for earlier imports due to the fall in prices, we've honoured our old commitments and prices." Besides, he emphasised, imports keep the price line stable, by preventing "deliberate and artifi-cial" scarcities.
This line is supported by finance minister Yashwant Sinha. In an October 31 letter to Barnala rejecting his demand for a hike in import duty on sugar, he contended that "this sugar year's (September to October) opening stock of 45 lakh tonnes would be the lowest in four years...this may cause the industry to indulge in speculative price escalation." More importantly, Sinha wrote: "...in the wake of current inflation-ary pressures in primary articles such as edible oils, pulses and vegetables, it may not be wise to allow the price stability of sugar to be disturbed."
But the two major sugar lobbies in Maharashtra, the Bombay Sugar Merchants Association and the Maharashtra Rajya Sahakari Sakhar Karkhana Sangh, who normally disagree on everything, are unanimous that imports are killing the domestic industry. Private sugar factories and those in the cooperative sector are sitting on surpluses: This year's opening stock, they say, was 60 lakh MT. Plus, the production in 1997-98 was 128.5 lakh MT, against an annual consumption of around 140 lakh MT. This year the production is expected to be 150 lakh MT, with over a third of this coming from Maharashtra.
Says Sangh secretary B.P. More: "Most of the Pakistani sugar imported so far has sold in Delhi, Rajasthan and Madhya Pradesh. The last two have been major markets for sugar producers in Maharashtra. And this policy by the government has begun to hurt." Adds Sangh president and former Maharashtra minister Vijaysinh Mohite-Patil: "With the kind of buffer stock we are sitting on, imports are redundant."
Chandrakant Shanghvi of the BSMA points out that with a mere 5 per cent duty, importers offload their entire stock on the free market. But the domestic industry has the burden of a 40 per cent levy of the total sugar production, which has to be set aside for the Public Distribution System (PDS)—this is bought off by the government at 20 per cent less than production costs.
After much protests, an additional "countervailing duty" of Rs 850 per tonne was imposed recently on imported sugar. But even with this, the total duties on imported sugar works out to only 10-12 per cent of that levied on domestic producers.
CONTRAST this with the European Union which has an import duty of 200 per cent to 240 per cent on sugar. The US levies 130 per cent. Closer home, Bangladesh has an import duty of 200 per cent, Pakistan imposes 26 per cent, Sri Lanka 66 per cent, Thailand 100 per cent, the Philippines 133 per cent.
"Of course, we've to allow free imports as part of the overall understanding we have arrived at with the WTO. But nowhere does the treaty say that we shouldn't impose levies and duties to level the playing field for the domestic market," adds Shanghvi.
The Sakhar Sangh, which sees the sugar industry as the only sustainable and thriving rural industry, worries the Centre's policy may destroy rural economics, particularly after the sugar industry was delicensed on August 31 this year. This though licenses already issued can generate a capacity of 284 lakh MT annually against a domestic requirement of only 140 lakh MT.
"The government should be thinking in terms of creating a permanent export market for sugar," says More. But, "after the assembly poll results, we've no hope that bold decisions will emerge," says Shanghvi. "Trouble is, in India we can't decide economic issues on economic parameters. They are based on solely political requirements."
A similar air of favouritism clouds the Pakistan side as well. The sugar mills market their produce to local dealers at an ex-mill rate of Rs 16,500 per MT (or Rs 16.50 per kg) after taxes, and in the local market sugar costs Rs 19-20 per kg. The government has fixed the export price at $250 (Rs 11,000) per MT, which means the importing country gets sugar at Rs 11 per kg, against ex-mill rates of Rs 16.50. Pakistan's former commerce minister, Chaudhry Ahmed Mukhtar alleges it was the political clout wielded by big mill owners that resulted in the phenomenal subsidies.
Sources in the Pakistan commerce ministry told Outlook that over 70 per cent of the sugar exported to India belongs to 10 major sugar mills of Punjab run by influ-ential personalities in the federal government, including the families of the prime minister and the interior minister. Sources in the central control room of Pakistan railway headquarters claimed these mill owners also get preference in sugar loading facilities, due to which letters of credit of non-influential sugar exporters were being cancelled. Besides, the Rawalpindi-based Army Welfare Trust has also jumped onto the sugar wagon.
Mahmood Ahmed, vice-president, Federation of Pakistan Chambers of Commerce and Industry, was of the view that ISMA has great influence on the Indian government. "That's why they're successful in protecting their market interests by 'reluctantly receiving' Pakistani sugar, which is superior to Indian sugar as well as available at low cost". That, of course, is not easily bought this side of the border.
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