Arun Goyal | 04 Jul, 2006
The
Department of Revenue issued a notification on 23 June to implement the
cabinet decision to allow import of sugar to bring the prices down. The
customs duty was reduced to zero on “white sugar” for a period of three
months ending 30 September 2006.
The
measure covers only refined sugar and other forms of sugar containing
flavours are also included in the duty concession. However, the import
of value added sugar will be a difficult proposition since the
description specifies the item of import as “White sugar” which means
the customs has the right to reject shades of sugar other than pure
white. In the world market sugar colour is a controversial subject, the
level of brightness and whiteness is defined in coding standards,
colour varieties according to sugar cane variety and additives used
during refining. The blanket exemption in the 1996 zero duty
dispensation on sugar ultimately covered all varieties of sugar to pave
the way for actual import of sweetener.
The cabinet allowed zero duty on sugar to bring down the consumer
prices. In actual implementation, the decision has been converted into
something else altogether. The original decision of zero duty limited
quantity import was converted to one of zero duty limited period duty.
The original decision would have acted as a permanent check on sugar
prices and the same time, would have given some protection to the
farmers and the sugar mills. In the event, the consumer welfare measure
has been limited only to white sugar that too for a period of three
months only.
According to the World Bank commodity prices data, the international
May average price of raw sugar at the Caribbean ports was 37.08 cents
per kg (Rs. 17.02 per kg). The landed price in India will be well above
Rs. 20 per kg after including Rs. 3 per kg freight and processing cost
of converting raw sugar to refined sugar and bleaching agents to whiten
the sugar. After landing, the sugar suffers a countervailing duty of
Rs. 0.71 per kg and Chess of Rs. 0.14 per kg. In addition, there is a
transaction cost of convincing the customs officers that the sugar has
the right measure of whiteness to satisfy the notification description.
There is also the Essential Commodities Act which requires the importer
to surrender the imported sugar for levy sugar distribution through the
PDS. Indian sugar in comparison to the customs gate price is cheap. It
is in the range of Rs. 18.50 per kg in the wholesale market.
The opportunity to control sugar prices surfaced in 2004 when the world
sugar prices were just 15.80 cents per kg (Rs. 7.57 per kg). However,
the margin in the price difference between imported sugar and domestic
sugar was given to the mills who were allowed to import raw sugar duty
free under advance license against an export obligation. As much as Rs.
976 cores of sugar entered the country in the year 2004-05, according
to DGCIS data. (Now that the world market is up, there is a chance to
redeem export obligation but this will raise the domestic prices
further and go against the spirit of cabinet decision). The sugar mills
led creeping price rise has resulted in panic and the Cabinet is now
making decisions which are best made at Joint Secretary level. At the
end of the day, sugar is sweet for the mills and the farmers but has
lost taste on the tongue of the consumer.
While the attempts to bring in sugar to make life sweeter for consumer,
Commerce Ministry and the Department of Revenue have cracked down on
Saccharin, the synthetic alternative to cane sugar. An anti-dumping
duty of $2.77048 per kg was slapped on saccharin import from China with
effect from 06 June 2006. It is alleged that the imports from the land
of the dragon are hurting the domestic producers. The high dumping
margins are based on artificially inflated domestic price in China on
the grounds that it is a non market economy. As of now, the
anti-dumping duty is on provisional basis and is valid only for the
next six months, that is, till 5 December, 2006. The final duty which
will be valid for at least five years may be even stiffer.
At the end of the day, there is no relief to the consumer, the sugar
trade is in the grip of the mills while saccharin, the sugar substitute
is in the hands of the Department of Revenue and Commerce. The price
rise will continue, we may well see the beginning of the second spiral
in the beginning of the sugar season itself in October this year.
Pulses:The
inevitable took place on 27 June with the DGFT ban on export of all
pulses in pursuance of the cabinet decision to bring down the domestic
price. The about turn is strange since the same government was giving
an incentive of five percent on pulses export for the last two years
under the VKGUY scheme till the date of prohibition. Fortunately, the
DGFT has protected imports already made against advance licenses. This
means that these goods can be exported with or without processing
in spite of the export ban. The same should also apply on licenses
already issued which are consequent to firm export commitments, but
DGFT has yet to apply this relaxation. Outstanding contracts for
exports against domestic supplies or duty paid import supplies cannot
be honoured because there is no provision to give a license or
permission when the export is prohibited, this is a special category of
restriction. Only the lucky exporter who had the cover of an
irrevocable letter of credit on the date of ban, that is, 27 June, has
a way out.
Officially, the ban is
only for six months but it may be extended further if the domestic
prices remain hard. The ultimate answer is to improve supply by giving
the right price signals to the farmer. The current ban gives the right
signal only to the urad and moong traders of Myanmar who have a field
day exploiting the vast captive demand in the Indian market. The chana
farmers of Punjab will see prices crashing and will shift to wheat
where the price signal has turned green. The Government is shifting to
the old 1970s vocabulary, the words “bans” and “hoarding and
profiteering” returning to Cabinet meetings. It is time for the
economists and market reformers to speak up.
