The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, gave its approval toincrease import duty on sugar from 25 percent to 40 percent.

In order improve the price sentiments relating to sugar, the Government has decided to take the following steps:

1)      The duty on import of sugar under the Open General License  (OGL) shall be increased to 40 percent, as against the current level of 25 percent.  This would prevent any imports in case international prices of sugar were to depress further.

2)      The “Duty Free Import Authorization” scheme (DFIA), for sugar would be withdrawn. Under the DFIA, exporters of sugar could import duty free, permissible quantities of raw sugar for subsequent processing and disposal. To prevent leakage of sugar made from such duty free imports in the domestic markets, the DFIA scheme for sugar would be withdrawn.

3)      Similarly, the period for discharging Export Obligations under the Advanced Authorization Scheme for sugar would be reduced to six  months, so as to prevent any possibility of any leakage into the domestic markets.

4)      Removal of excise duty on ethanol supplied for blending. It has been decided that ethanol produced from molasses generated during the next sugar season and supplied for ethanol blending would be exempted from excise duty and the price benefit would be passed on the to the sugar mills/distilleries.Presently 12.36 percent central excise duty is levied.

These measures will significantly improve the adverse price sentiments in respect of sugar and would improve the liquidity in the industry, facilitating the clearing up of arrears of canedues to farmers.

Background:-

The past four years have witnessed continued overproduction of sugar as compared to domestic requirements. This has depressed sugar prices; consequently the mills have been constrained for liquidity and are facing difficulties in clearing cane dues owed to the farmers. This has affected the incomes of 50 million sugar cane farmers. Similar conditions of subdued prices prevail in the global markets. The Government has, from time to time, provided financial assistance to the industry to overcome liquidity constraints such as providing interest free working capital loans and incentives for raw sugar exports. However, due to adverse price sentiments plaguing the sector, problems of cane dues arrears persist. As on 31^st March 2015, the cane dues arrears stood at  Rs.20,099 crore which is higher than the previous year.

Import duty on sugar raised to restrict imports and protect domestic prices, alongside trade and excise policy changes. The Government increased the import duty on sugar to restrict imports and withdrew the Duty Free Import Authorization scheme for sugar; it also shortened export obligation discharge under the Advanced Authorization Scheme to six months and exempted ethanol from excise duty when supplied for blending, measures intended to improve price sentiments and industry liquidity to aid clearance of cane dues.