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Wednesday, 06 August 2014 00:00
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Don’t bail out UP till it puts good policies in place

With the general elections in mind, the UPA had no compunctions in announcing a sugar package for mills last December which included a 12% interest subvention and hiking mandatory ethanol blending in petrol. While the mills were quick to take the loans, the problem was the basic issue of sugar reforms in states like Uttar Pradesh remained unaddressed. As a result, for the last several years, the same circus keep repeating itself—the state announces a State Advised Price (SAP) that is way above the Centre’s Fair and Remunerative Price (FRP) in order to curry favour with farmers; the mills can’t afford this, so don’t pay the farmers and pile up arrears; the state issues warrants against them ... This was what the Centre needed to fix last year when it announced a bailout package. It even had a formula to do this. The Rangarajan committee had suggested mills pay the farmers the FRP as soon as they get the cane—this is R210 per quintal for UP as compared to the SAP of R280. Once all the production is done and all by-products sold, the mills are to pay the farmers more money so as to ensure they get 70% of the total value received by the mills.

Since this wasn’t done, the mills in Uttar Pradesh used the R1,600-odd crore of loans they got to clear farmers dues for 2012-13; the dues have, however, piled up to around R5,000 crore once again. While the sugar mills of Uttar Pradesh have issued a notice to the state saying they will not crush cane in the coming season until the Rangarajan formula is adopted by the state, some more patchwork solutions are being tried. One of these, fortunately not implemented by the government as yet, was food minister Ram Vilas Paswan announcing a dramatic hike in import duties from 15% to a whopping 40%. Apart from the fact that such a duty hike would only serve to drive up prices at a time when the government’s strategy is to contain inflation, the larger point is that the UP government is playing politics and it cannot be encouraged to keep doing so. Any bailout package has to be conditional on the state first fixing its policies—last December, the state had promised to come out with a Rangarajan-type formula linking cane prices to those of the mills revenues, but this has yet to happen; indeed, the mills say they have not even been made part of any discussions on this. If the Samajwadi Party wishes to play sugar daddy instead of reforming its policies, it needs to make good the difference between the FRP and the SAP—based on current production levels, and the mills capacity to pay, that’s around R3,000 crore a year.


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