Aiming to alleviate the growing stress in the domestic sugar industry, the government has increased the minimum selling price of the commodity by Rs 2 per kg to Rs 31 per kg. This will boost margins of sugar companies and is expected to free up Rs 3000 crore towards payment of cane arrears that has already topped Rs 2,000 crore as on February 13.
However, given the fundamental issue of glut in the domestic market, it may be a case of too little too late. Even though sugar production is slated to fall to 30 mt in 2018-19 against 32.3 mt in 2017-18, it is still higher than what is required at 26 mt. Add to that the 10.7 mt of excess stock from last year, the glut situation worsens.
The hike in MSP notwithstanding, in a free market regime, this will perennially keep prices and with it the margins of sugar companies under pressure. The real solution of dissuading farmers from growing more water consuming yet lucrative sugarcane as a crop remains a political hot potato, which nobody seems willing to take.