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Some in India are starting to “get it” regarding sugar subsidies

As the Indian government continues to boost subsidies to the nation’s sugar industry, some of the more market-oriented are starting to say “enough is enough.” Consider this rather extraordinary editorial published in The New Indian Express on June 27, 2014…

Sugar Industry Needs Reform, Not Bailout

The bailout plan for the sugar industry, announced on Monday, seeks to treat its symptoms, rather than the illness. It is justified on the ground that the sugar mills face a liquidity crisis and owe the cane-growers nearly Rs 11,000 crore.

However, the package is unlikely to lift the industry from the morass in which it finds itself. The present pathetic condition of the industry is the result of the wrong policies the government has been pursuing. While the economic reforms initiated over two and a half decades ago have liberated most of the industries from the licence-raj syndrome, the sugar industry has remained in its pristine pre-reform condition.

A lasting solution to the sector’s unending problems lies in well-thought-out reforms, not in piecemeal, regressive measures that offer temporary relief. State-administered cane price continues to be the fulcrum of the government’s sugar policy. Unfortunately, it has not benefited either the farmers or the sugar mills. Yet, the government has been announcing the cane price every year, as if it has been doing a great service to the cane-growers. This policy doesn’t take into account a basic principle of economic policy that there should be a match between demand and supply. Both the mills and the cane-growers need to be freed from unnecessary government intervention.

Ideally, the farmers should have the freedom to cultivate or not cultivate more or less of their cultivable land. Also, they should have a choice of the sugar mill to which they can sell their produce. In other words, they should be able to bargain and strike a deal that meets their demands.

Since the mills cannot operate without adequate supplies of sugarcane, they will have to keep the farmers in good humour. The state governments have to be brought into the picture and told that the high import duties on sugar, export sops and zero-interest loans to sugar mills are a one-time affair. Now that sugar supplies are adequate, it is time to initiate structural reforms in this sector.

If India – and other foreign governments – would stop propping up their inefficient sugar producers with subsidies that distort world market, the U.S. would be able to end its protections of our domestic, extremely efficient sugar producers from artificially cheap imports.

Zero subsidies for them. Zero protections for us. A fair, level playing field in which the market, not governments, dictate the price of sugar. It’s an idea whose time has come.