The Narendra Modi government is considering proposals to reorganise the sugar sector with a national stockpile of the sweetener and greater control on supply, following a glut that has left millers with sinking profit and farmers without payment.
Plentiful stocks, the highest since 2012, cheaper imports and mounting dues of nearly Rs 19,000 crores that millers owe to sugarcane growers have accentuated a farm crisis triggered by a spate of weather shocks this winter.
Missed payments have driven at least four cane farmers to suicide in Uttar Pradesh since January, though the state government has officially not labeled them as "suicides induced by crop failure".
India is the world’s second-largest sugar producer after Brazil and the biggest consumer as well. Domestic production is set to rise to 26.5 million tonnes this year, against a demand of 24.8 million tonnes, according to forecasts.
Amid the glut, traders had taken advantage of falling prices in Brazil, which too ended up with a bumper harvest, to import the Brazilian variety, rendering domestic raw sugar unprofitable.
To ease the crisis, a group of ministers led by finance minister Arun Jaitley has recommended the government buy 3.5 million tonnes of sugar to soak up the surplus and discourage imports by hiking import duty by 40%.
The government could revert to an old system in which it decides how much sugar mills can sell each month. All these steps, the government hopes, will improve falling wholesale prices of domestic sugar, restore profits of millers and help them clear dues to growers.
A cabinet proposal to build a sugar reserve and regulate supplies would be floated next week, an official said. The measure to hike import duty would not require a cabinet nod but a simple notification by the commerce ministry.
The plan states that the sugar reserve will be owned by government, but held by millers since no state government came forward to stock it. It will be offloaded in the markets only when the government orders its release.
The previous UPA government had freed major archaic controls on the sugar sector, which were seen as vestiges of the licence raj.