Legislations
The major legislations and policies concerning the sugar industry are
the following:
·
The Essential Commodities Act, 1955
·
Sugar Control Orders, 1943, 1966 and 1999
·
Sugarcane Control Order, 1966
·
Sugar Export Promotion Act, 1958
·
Sugar Cess Act, 1982
·
Sugar Development Fund Act, 1982 and 2002
·
Sugar Wage Board Rules
·
Molasses Control Order, 1961 and Molasses Decontrol,
1993
·
Excise and Customs Rules
The Essential Commodities Act, 1955
Sugar is a commodity covered under the Essential Commodities Act, 1955.
Therefore, it is subject to the various provisions and the controls of this
Act. Under this Act, the Central government is empowered to regulate/prohibit
trade and commerce in, and the production, supply and distribution of any
essential commodity for the following:
·
Maintaining or increasing the supply of the essential
commodity
·
Equitable distribution and availability of the
essential commodity at a fair price
The Central Government issues orders for every commodity under this Act.
Sugar is defined in sub-section (e) of Section 2 of the Act as sugar or
any sugar in crystalline or powdered form. However, all the controls, which are
applicable to sugar produced through vacuum pan process by sugar mills, are not
enforced in entirety on khandsari sugar at present.
Some of the provisions under the Act are the following:
·
Section 3 - empowers the Central Government to make
orders for achieving the primary objectives of checking inflationary trend in
prices and ensuring equitable distribution of the essential commodity.
·
Section 6 - seizure/confiscation of the commodity by
the District Collector.
·
Section 7 - penalties for contravention of the
provisions of any order made under Section 3.
·
Section 7A - power to recover certain amounts as
arrears of land revenue.
·
Section 10 - makes every offence punishable under the
Act as cognizable and non-bailable.
In February 2002, the government removed the requirement of licensing,
and restrictions on the storage and movement of sugar. Consequently, dealers
are free to buy, store, transport and distribute any quantity of sugar, without
any licence or permit.
In June 2003, the government amended the Essential Commodities Act, 1955
by inserting Clause 3 (D) and 3 (E) for validating the regulated releases
mechanism; which was being challenged by mills in various courts, leading to
difficulties in its operation and a decline in sugar prices. The new Act
empowers the government to issue directions to implement the regulated release
mechanism policy of the government effectively.
Sugar Control Orders, 1943, 1966 and 1999
The Sugar Control Order is legislation subordinate to the Essential
Commodities Act. Under the Sugar Control Order, the Central government is
empowered to the following:
·
Regulate sugar production
·
Regulate the movement of sugar
·
Regulate the quality of sugar, according to the terms
of the Indian sugar standard grades, and to direct the reprocessing of sugar,
if it is in non-conformance with the specific grades
·
Regulate sugar trade by issuing directions to sugar
producers or recognised dealers regarding production, maintenance of stock,
storage, sale, grading, weighing and disposal
·
Demand information, such as information on the
operations of sugar mills
·
Inspect, search, seize, etc.
In June 1999, the Act was amended to bring sugar imports and importers
also under the purview of the order. Consequently, the government now has the
power to control and regulate the sale of imported sugar, just as it does for
domestic production.
The sugar industry was delicensed in August 1998. Consequently,
sugar companies can set up new capacities or expand existing capacities without
obtaining a licence. However, there should be a minimum distance of 15
kilometres between two sugar mills.
The restrictions related to stock holdings and other formalities were
removed effective July
7, 2000 . The government also abolished the turnover limits of 30
days applicable to recognised sugar dealers effective August 2001.
Sugarcane Control Order, 1966, (amended 2006, 2007)
Under the Sugarcane Control Order, the Central government is empowered
to the following:
·
Fix the Statutory Minimum Price (SMP) for the
sugarcane purchased by the sugar mills in every season and the payment of
interest at the rate of 15 per cent per annum, on the amounts due to the
farmers beyond 14 days of the delivery of sugarcane at the factory gate
·
Fix the SMP based on the following criteria: cost of
production of sugarcane, returns to the grower from alternative crops and the
trend in the prices of agricultural commodities, availability of sugar at a
fair price, price at which sugar produced from sugarcane is sold by sugar
producers and the recovery of sugar from sugarcane
·
Regulate the movement and distribution of sugarcane
·
Regulate and provide licences to power crushers and
khandsari units
·
Issue directions to khandsari units
·
Fix the minimum price for khandsari sugar at a rate
not exceeding the SMP
·
Restrict the sugarcane grower to supply not less than
85 per cent of the sugarcane agreed by the grower
·
In November 2006, the government amended the order to
fit the minimum distance between two sugar mills at 15 km.
·
In December 2007, the government amended the Sugarcane
Control Order 1966 to permit the manufacture of ethanol directly from sugarcane
juice or ‘B' Heavy molasses. Only sugar factories can manufacture ethanol
directly from sugar cane.
Sugar Export Promotion Act, 1958
The Sugar Export Promotion Act, 1958, governed sugar exports up to
January 1997. It stipulated that the government could export up to 20 per cent
of the country's total sugar production. Also, exports were canalised
through the Indian Sugar and General Industry Export Import Corporation Ltd, a
consortium of apex organisations of private and cooperative sugar mills and
government agencies. In January 1997, the Sugar Export Promotion Act was
repealed, and sugar exports were decanalised.
But controls on exports continued to be in place, in the form of
quantitative restrictions on exports and the requirement to register exports
with the Agricultural and Processed Food Products Export Development Authority.
These restrictions were also removed from April 1, 2001 . Sugar companies are now
free to export as much sugar as they want.
In July 2006, in a bid to check rising domestic sugar prices, the
government imposed a temporary ban on white sugar exports which would be on
place till 31st March 2007. The ban applied to exports under the advance
licence scheme as well. The ban was lifted in January 2007.
In order to lend support to sugar prices, which had fallen by 22 per
cent since the imposition of the ban in July 2006, the government, in April
2007, introduced an export subsidy of Rs 1,350 and 1,450 per tonne for mills in
coastal and inland states, respectively.
Levy Sugar Price Equalisation Fund Act, 1976
The purpose of the Levy Sugar Price Equalisation Fund Act, 1976 is
providing for the establishment of a fund to ensure that the prices of levy
sugar would remain uniform across the country.
Excise rules, Sugar Cess Act, 1982, and Sugar
Development Fund Act, 1982 and 2002
The government charges a higher excise duty on the free sale quota, as
compared to that on levy quota, in order to recover the subsidy provided on the
sugar supplied through the public distribution system. In addition, under the
Sugar Cess Act 1982, a cess is charged on the sugar sold in the domestic
market, which directly goes to the Sugar Development Fund (SDF).
Currently, free sale sugar attracts an excise duty of Rs 950 per tonne
(basic excise duty of Rs 710 and cess of Rs 240), while levy quota is subject
to an excise of Rs 620 per tonne (basic excise duty of Rs 380 and cess of Rs
240).
Prior to May 2002, the funds in the SDF could be used for the following
purposes:
·
To provide financial assistance through loans at
concessional rates for the rehabilitation and modernisation of sugar factories
·
To make available funds for sugarcane development and
research and development activities in the sugar industry
·
To defray the expenditure for the building up and
maintenance of buffer stock of sugar
·
In May 2002, the SDF Act was amended to enable the
utilisation of the SDF corpus for the following:
·
To provide concessional loans to sugar mills for
establishment of ethanol plants and power cogeneration units
·
To defray the expenditure on internal transport and freight
charges on export shipments of sugar
In February 2005, the Centre announced a five percentage point reduction
in the rate of interest on loans disbursed to sugar mills from the SDF
(including outstanding loans as of October 21, 2004 ) from 9 per cent to two
percentage points below the bank rate, that is, 4 per cent.
Sugar Development Fund Rules, 1983
The Sugar Development Fund Rules allow the government to exercise the
power of the SDF Act. It stipulates the various norms and procedures to be followed
in making the grants or loans out of the fund, the applications that have to be
made, the composition of the committee and the procedures that it follows in
discharging its duties and the form and period in which the sugar mills are
required to report any information.
Sugar Wage Board Rules
The government fixes the minimum wages to be paid to the workers in the
sugar industry, based on the recommendations of the Central Wage Board,
appointed by the government.
Molasses Control Order, 1961 and Molasses Decontrol
(1993)
Till 1993, the Central government controlled the production, sale and
movement of molasses through the Molasses Control Order issued in 1961. In
1993, the government decontrolled the molasses sector. An excise duty of Rs 750
per tonne is levied on molasses. Utilisation, sale and movement of molasses
continue to be restricted by some state governments.
Tuteja Committee recommends partial decontrol
The Tuteja Committee - set up in March 2004, under the chairmanship of
Union Food Secretary, SK Tuteja, to look into various problems plaguing the
sugar industry and suggesting long-term remedies for revitalising the industry
- submitted its recommendations to the government in December 2004.
While stopping short of recommending the total decontrol of the
industry, the committee has recommended doing away with the present system of
monthly releases of free-sale sugar. Its other recommendations include
continuing with the current 10 per cent levy quota and the system of announcing
an SMP for sugarcane, and increasing the minimum distance between two sugar
units. A financial package for mills situated in drought-affected and
flood-affected states, and a compensation formula for mills covered under the
1993 and the 1997 incentive schemes have also been mooted.
In the table below, we have detailed some of the major recommendations
of the Tuteja Committee and the impact of these recommendations, in case they
are accepted by the government.
Chart 1: Sugar - Tuteja Committee recommendations
|
Recommendations
|
Impact
|
|
Free sugar releases
|
|
|
Scrap the
monthly releases mechanism for free sale sugar with effect from the 2005-06
sugar season, beginning
|
Sugar mills
will have complete control over the quantum and timing of sugar sales in the
open market.
|
|
|
Financially
stronger mills will be the biggest beneficiaries, as they will be able to
hold on to their stocks and release them during periods of higher
realisations.
|
|
Levy sugar quota
|
|
|
Continue with
the current 10 per cent levy quota.
|
Partial
relaxation of existing regulation unlikely to have a major impact.
|
|
But if the
state governments do not lift the levy sugar within 3 months beyond the
initial time limit, the levy sugar should be automatically converted into
free sale sugar, without any recurring obligation on this portion of levy
sugar.
|
|
|
Sugarcane pricing
|
|
|
Continue with
the present system of announcing a Statutory Minimum Price for sugarcane.
|
Status quo
for mills.
|
|
Distance between two sugar mills
|
|
|
Increase the
minium radial distance between an existing sugar mill and a new factory from
the existing 15 kms to 25 kms.
|
Aimed at
ensuring adequate availability of sugarcane for crushing for existing mills.
|
|
Financial package
|
|
|
Debt recast
package worth Rs 65 billion recommended.
|
Meant to
provide financial assistance to mills in drought and flood affected states,
unable to crush sugarcane in the present scenario.
|
|
Rescheduling
of loans as of March 2004 for a period of 10-12 years.
|
|
|
3-year
moratorium on principal and interest payments, starting 2004-05.
|
|
|
Compensation for mills covered under 1993 and 1997 incentive schemes
|
|
|
Sugar units
set up under the 1993 and 1997 incentive scheme, wherein units licensed
during 1990-1998 were exempt from any levy requirement till 5 years from the
date of commissioning of the mill, have not derived the originally intended
benefit.
|
56-odd units,
set up under these incentive schemes, will benefit from the payment of lower
excise duty.
|
|
Such mills
should be allowed to pay the excise duty of Rs 58 per quintal, payable on
levy sugar, on 50 % of sugar sold by these units under their free sale quota,
as against excise duty of Rs 71 per quintal payable on free sale sugar.
|
|
|
Imports
|
|
|
Augment the
supply of sugar, when required, through facilitation of raw sugar imports.
|
Meant to
ensure adequate and comfortable sugar supply in the country.
|
|
Source:
CRISIL Research
|
|
Chart 2: Sugar - Key regulatory changes
|
Period
|
Regulations
announced
|
|
October 2001
|
The
government fixed the statutory minimum price (SMP) for sugarcane at Rs 62.05
per quintal for the 2001-02 sugar season, as compared to Rs 59.5 per quintal
during the 2000-01 sugar season.
|
|
November 2001
|
The
government announced that 5 per cent ethanol would be allowed to be blended
with petrol.
|
|
|
The government
permitted three exchanges to conduct futures trading in sugar. The approved
exchanges are e-commodities Ltd, Mumbai; NCS Infotech Ltd,
|
|
|
The
government decided to release the free-sale quotas of individual mills on a
quarterly basis, in two periods of 45 days each, instead of the existing
monthly basis.
|
|
|
The
government lifted the ban on export of raw sugar.
|
|
|
The period
for deferment benefit adjustment for releasing free-sale sugar for export
purposes was extended from 12 months to 18 months.
|
|
February 2002
|
The
government announced that it would issue an order under Section 3 of the
Essential Commodities Act, 1955 for the removal of restrictions on the
storage and movement of sugar.
|
|
|
The
government also announced its intentions to fully decontrol the sugar
industry, subject to the sugar futures being operational and sugarcane prices
being rationalised.
|
|
|
In the Union
Budget 2002-03, the government reduced the levy ratio from 15 per cent to 10
per cent.
|
|
|
The surcharge
on petrol mixed with 5 per cent ethanol was fixed at Rs 5.25 per litre, lower
than the surcharge of Rs 6 per litre on petrol.
|
|
March 2002
|
The
government reduced the duty drawback benefit on the fob value of exports of
white sugar under the DEPB scheme to 4 per cent, from 5 per cent. No duty
drawback benefit was allowed on raw sugar.
|
|
May 2002
|
The Sugar
Development Fund (Amendment) Bill 2002 was passed in the Lok Sabha. According
to the amendments in the Sugar Development Fund (SDF) Act, 1982, the funds
from the SDF could be utilised by the sugar mills, to set up bagasse-based
co-generation and
|
|
June 2002
|
The
government gave a formal clearance to esugarindia for conducting futures
trading in sugar.
|
|
|
The
government announced a transport subsidy for exports known as the ‘Incentive
on Wheel'. The export subsidy covers the distance from the sugar factory to
the nearest loading railhead, of the nearest port.
|
|
|
The
government announced that the quota released for the July-September 2002
quarter would be released on a monthly basis, instead of a quarterly basis.
|
|
July 2002
|
The
government notified the Jute Packaging Order, diluting the norms for the
compulsory use of jute for packaging foodgrain and sugar. The new norms
stipulate that only 80 per cent of the foodgrain and 75 per cent of sugar
have to be packed in jute bags
|
|
|
Reportedly,
the government's scheme to provide a subsidy of Rs 2.5 million for every mega
watt of power produced by the sugar factories would be extended for a period
of over 3 years.
|
|
|
The
government fixed the statutory minimum price (SMP) for sugarcane at Rs 64.50
per quintal, for the 2002-03 sugar season, as compared to Rs 62.05 per
quintal during the 2001-02 sugar season.
|
|
August 2002
|
The Union
Minister of Petroleum announced that the sale of gasohol (petrol blended with
5 per cent ethanol) would be compulsory in nine states and four Union
territories from
|
|
October 2002
|
The Union
Minister of Petroleum, Ram Naik, announced that gasohol (petrol blended with
5 per cent ethanol) will be supplied throughout the country from September
2003.
|
|
November 2002
|
The Centre
created a buffer stock of 20 lakh tonnes of sugar for 1 year.
|
|
December 2002
|
The statutory
minimum price (SMP) for sugarcane was increased from Rs 64.50 to Rs 69.50 per
quintal on 8.5 per cent of recovery level for the 2002-03 season.
|
|
January 2003
|
In order to
encourage the ethanol-based industry, the Union finance minister agreed to
provide a 30 paise rebate on ethanol-blended petrol.
|
|
February 2003
|
The Reserve
Bank of
|
|
March 2003
|
The
government announced its decision to provide an ocean freight subsidy of Rs
350 per tonne on sugar exports.
|
|
April 2003
|
The Rajya
Sabha passed the Essential Commodities (Amendment) Bill, 2003. The amendment
is aimed at tightening the sugar releases mechanism, which governs the
quantum of sugar that mills are allowed to sell in the open market in a
particular period, by b
|
|
May 2003
|
Lok Sabha
gave its approval to the Essential Commodities (Amendment) Bill, 2003.
|
|
June 2003
|
The
government notified the bill amending the Essential Commodities Act. As a
result, it regained control over sugar releases in the market.
|
|
|
The
government decided to postpone the deregulation of the industry to October
2005.
|
|
July 2003
|
The
government announced a Rs 600 crore package to enable sugar mills in states
which announce a state advised price (SAP) for cane to pay sugarcane farmers
the dues arising out of the diference between the SAP and the SMP, which is
lower than the SAP.
|
|
September
2003
|
The
Commission for Agricultural Costs and Prices recommended an SMP of Rs 73 per
quintal for sugarcane crushed during the 2003-04 sugar season, linked to a
recovery rate of 8.5 per cent.
|
|
October 2003
|
The
government announced another relief package to enable payment of cane arrears
to farmers in states that do not declare a state advised price (SAP). The
total worth of both the packages (the other one being the Rs 600 crore
package for SAP declaring).
|
|
|
The
government decided to allow the reimbursement of handling and marketing
charges at the rate of Rs 500 per tonne on sugar exports.
|
|
December 2003
|
The
government notifies an SMP of Rs 73 per quintal for sugarcane crushed during
the 2003-04 season.
|
|
|
The
government decided to extend the period of the buffer stock of 2 million
tonnes by 1 more year.
|
|
February 2004
|
The
government stated that it would announce a special package for the sugar
industry, and the restructuring of loans taken by sugar factories would be
examined by lending agencies.
|
|
May 2004
|
The Supreme
Court upheld the right of the state governments to fix sugarcane prices over
and above the SMP declared by the Central government.
|
|
|
The
government scrapped the buffer stock of 2 million tonnes of sugar 7 months
ahead of the time scheduled.
|
|
June 2004
|
The
government scraps the subsidies (reimbursement of internal transport, ocean
freight and handling and marketing charges) on offer for the export of sugar.
|
|
September
2004
|
The norms for
the import of raw sugar under the advance licence scheme were relaxed.
|
|
|
The
government announced its decision to increase the base recovery for
calculating SMP of sugarcane from 8.5 per cent to 9 per cent, and also
compute the SMP on the basis of average recovery obtained during the entire
crushing season instead of only con
|
|
|
The decision
to decrease the rate of interest on loans disbursed under the Sugar
Development Fund (SDF) to 4 per cent from 9 per cent was announced.
|
|
October 2004
|
The
government extended the period for the maintenance of buffer stock of 2
million tonnes of sugar up to December 2004 with retrospective effect.
|
|
November 2004
|
The government
announces an SMP of Rs 74.50 per quintal for sugarcane procured for crushing
during the 2004-05 season, linked to a basic recovery rate of 8.5 per cent.
The SMP is to be computed based on the average recovery obtained during the
entire sea
|
|
January 2005
|
The norms for
duty-free imports of raw sugar under the advance licence scheme were relaxed
further where mills were allowed to fulfil their obligation to export white
sugar within 36 months as against 24 months earlier.
|
|
February 2005
|
Reduction in
basic customs duty on molasses and industrial alcohol from 15 per cent to 10
per
cent.
|
|
|
Hike in
excise duty on molasses from Rs 500 per tonne to Rs 1,000 per tonne
(excluding education cess)
|
|
|
Financial
package proposed by the government for restructuring of sugar mills -
moratorium of 2 years along with new payment schedule for both principal and
interest, interest rate on SDF loans, including out standing loans as of
|
|
May 2005
|
Reduction in
excise duty on molasses, reduced from Rs 1,000 per tonne to Rs 750 per tonne.
|
|
August 2005
|
The SMP for
the 2005-06 sugar season is declared at Rs. 79.5 per quintal linked to a
basic recovery rate of 9 per cent. For every 0.1 increase in the recovery
rate beyond the base rate of 9 per cent an additional Rs. 0.88 will be
payable.
|
|
September
2005
|
The
government announces a package of Rs 5,250 million for cooperative sugar
units that were in operation in the 2002-02 sugar season. The mills would be
given a 2-year moratorium on interest and principal repayments and the
interest rate on the restruct
|
|
March 2006
|
The basic
excise duty on sugar was hiked from Rs 340 per tonne to Rs 710 per tonne in
the Union Budget 2006-07 by eliminating the additional excise duty of Rs 370
per tonne and clubbing it with the basic excise duty.
|
|
June 2006
|
The
government announced that it would permit duty free sugar imports up to 30th
September 2006. The countervailing duty of Rs 850 per tonne would still be
payable.
|
|
July 2006
|
The
government imposed a general ban on white sugar exports which will be in
place till 31st March 2007. The ban is also applicable to white sugar exports
under the Advance License Scheme.
|
|
|
The
Government approves 100% compulsory packaging of food grains and sugar in
jute bags for the 2006-07Jute year (July-June).
|
|
August 2006
|
Directorate
General of Foreign Trade (DGFT) in a notification dated 9th August, 2006
stated that the period for discharge of export obligation shall be extended
by the period of the ban as long as the export obligation had not expired
prior to the imposit
|
|
|
The DGFT in
another notification also dated 9th August 2006 stated that sugar exports to
|
|
|
The SMP for
sugarcane for the 2006-07 SS has been fixed at Rs. 80.25 per quintal linked
to a basic recovery rate of 9.0%. A premium of Rs 0.9 would be payable for
every 0.1 per cent increase in the recovery beyond the base level of 9 per
cent.
|
|
November 2006
|
The
government ammends the Sugarcane Control Order, 1966 and makes the following
changes: 1) Minimum radial distance between two sugar mills must be 15 Km 2)
Registration fee for setting up a new mill hiked from Rs 1,000 to Rs 1 crore.
3) Holders of exist
|
|
December 2006
|
The SMP for
sugarcane for the 2007-08 SS has been fixed at Rs. 81.18 per quintal linked
to a basic recovery rate of 9.0%. A premium of Rs 0.9 would be payable for
every 0.1 per cent increase in the recovery beyond the base level of 9 per
cent.
|
|
January 2007
|
The
government on 3rd January 2007 issued a notification which stated that mills
with export obligations under the Advance License Scheme (ALS) were allowed
to export sugar.
|
|
|
The
government ion the 23rd of January issued a notification completely lifting
the export ban.
|
|
April 2007
|
The Government
announces the creation of a 2 million tonne buffer stock and export subsidy
of Rs 1,350 and Rs 1,450 per tonne for costal and inland states,
respectively.
|
|
May 2007
|
The Indian
Sugar Exim Corporation announces an export subsidy of US $ 15 per tonne over
and above the export subsidy declared by the central government.
|
|
June 2007
|
The
government hikes the buffer stock to 5 million tonne.
|
|
December 2007
|
The
government amends the Sugarcane Control Order, 1966 to allow the production
of ethanol directly from sugarcane juice or 'B' heavy molasses.
|
|
January 2008
|
The
government hikes the cess on sugar from Rs 140 per tonne to Rs 150 per tonne,
bringing the excise duty on free sale sugar to Rs 860 per tonne and that on
levy sugar to Rs 530 per tonne.
|
|
March 2008
|
The
government further hikes the cess on sugar from Rs 150 per tonne to Rs 240
per tonne, bringing the excise duty on free sale sugar to Rs 950 per tonne
and that on levy sugar to Rs 620 per tonne.
|
|
April 2008
|
The
government dismantles the first buffer stock of 2 million tonnes by allowing
mills to sell sugar from the buffer stock without release orders from 1st May
2008 onwards. Mills would have to dispose of the entire stock by the end of
the 2007-08 SS.
|
|
May 2008
|
The
government fixes the SMP for sugarcane for the 2008-09 SS has been fixed at
Rs. 81.18 per quintal linked to a basic recovery rate of 9.0%. A premium of
Rs 0.9 would be payable for every 0.1 per cent increase in the recovery
beyond the base level of 9
|
|
July 2008
|
The
government dismantles the second buffer stock of 3 million tonnes by allowing
mills to sell sugar from the buffer stock with out release orders from
|
|
Source:
CRISIL Research
|
|
