The government is in a quandary as agriculture minister Sharad Pawar is mounting increasing pressure to open up sugar exports at a time when headline inflation is ruling at over nine per cent.
While Pawar's argument makes sound logic for the sugar industry as it will enable it to rake in higher profits, it also entails the risk of domestic prices of sugar spiralling upwards. The empowered group of ministers (eGoM) will be meeting on Thursday to take a call on the issue. According to sources, food minister K.V. Thomas, who is touring Chhattisgarh, has been caught unawares by the move and will be rushing back for the meeting.
The meeting has been called after the Maharashtra strongman had shot off a letter to Prime Minister Manmohan Singh on the issue. The government, which has been under attack from the Opposition for not being able to rein in runaway inflation, is expected to tread cautiously on the issue.
Retail prices of sugar in middle-class colonies in the Delhi and the NCR range between Rs 35 to 40 per kg while in the lower middle class residential areas the sweetener is selling at around Rs 32 per kg.
A senior official said the danger is that opening up of exports could raise inflationary expectations, which the retail traders exploit. Sugar futures on the NCDEX have already gone up by two per cent for July because of the earlier round of exports, he added.
The government had allowed the export of five lakh tonnes of sugar in April but the sugar mills want to export another 1.5 million tonnes as they claim to have ample stocks, and prices in the international market are ruling high. Pawar, a key UPA ally, has supported this case and wants a quick decision on the issue on the ground that the price advantage of Rs 500-600 per quintal in the international market may not last beyond a month.
Although international prices of sugar have been firm this year, a port strike in Brazil, which is also a large producer of the sweetener, has further reduced supplies in the market causing prices to spurt.
Pawar, who is considered close to the Maharashtra sugar lobby, is also pushing for exports in his capacity as agriculture minister. His logic is that the enhanced earnings of the sugar mills would enable them to clear the outstanding dues to farmers. Several sugar mills in UP, for instance, have paid farmers only for cane supplied till February and are holding back the payments due for March-May.
Thomas, on the other hand, sees the demand for sugar going up in the festive months of October to November and does not want to allow exports before that. This would also be at a time when the next sugar season starts and would allow a more realistic assessment of the existing stocks.
The finance and commerce ministries, which are also represented on the GoM have been supporting Thomas on the issue. Pawar, who was the food, public distribution and consumer affairs minister earlier had been stripped of this charge in the recent reshuffle as his policies were seen to have fuelled inflation.
Pawar was blamed for the untimely export of onions which had triggered a sharp increase in its domestic prices and embarrassed the government. Similarly, spiralling prices of wheat and rice even as the government's godowns were overflowing with foodgrain was attributed to Pawar's failure to handle the situation.