Why Modi's move on sugar is just for political gains

This post was first published on Firstbiz.com Sugar may finally have dethroned onions to become the most political commodity traded in India. At least that is what the Narendra Modi government’s latest move to hike import duty on the sweetener may be an indication of. [caption id=“attachment_1586537” align=“alignleft” width=“380”]  Representational image. AFP[/caption] In its bid to help the financially weak sugar manufacturers, the government yesterday announced a slew of measures including raising import duty on the commodity and extending the subsidy on it. The government has said that it will raise its import duty on sugar to 40 percent from 15 percent and also extend the subsidy on raw sugar exports until September. It has also decided to raise the mandatory level for blending ethanol in petrol to 10 percent from 5 percent. Sugar mills can also avail of the interest-free loans worth Rs 4,400 crore for an extended period of five years from the earlier three years. However, the government will notify all these only once the sugar makers give a concrete plan on how they would pay back the arrears to farmers, which currently stands at $1.84 billion. According to Reuters, the increase in import duty will make overseas purchases nearly unviable for Indian refiners. This will also increase the sugar prices in the domestic markets. Media reports estimate the prices to rise by Rs 2/3 per kg. The carrot-and-stick method of dealing with the sugar mills, however, is also attracting criticism that it is aimed more at influencing the upcoming state elections in Maharashtra. Going to polls in the next three months, the state’s sugar lobby along with cane growers in Uttar Pradesh are expected to be the biggest beneficiaries of the import duty hike. According to a Times of India report, prominent ministers from the state like transport minister Nitin Gadkari sat in on the meeting to clear the package, which could benefit sugar mills and cane growers in the western state and are traditionally supporters of the Congress-NCP alliance. The government’s pre-poll sop for Maharashtra will come at a cost to the consumers, amid pressure on food prices in the wake of weak monsoons. Higher import duty on sugar will make it completely unviable to bring consignments of the sweetener into the country, making it possible for the industry to raise prices in the domestic market from the current level of around Rs 39 a kg. Reacting to the announcements, sugar prices have already risen to Rs 60 per quintal in leading wholesale markets, PTI reported. According to another report in the Times of India, the extension of export subsidy is also likely to be a bone of contention at the World Trade Organisation. Countries like Australia and Brazil have already said that the payment is making Indian sugar more competitive in the global markets. Clearly, such short-term solutions aimed at political gains can only create problems for the long term. They are also likely to dent the economic reformer image of Modi.