As Union Finance Minister Nirmala Sitharaman prepares to present the first budget of the Narendra Modi government 3.0 on Tuesday (July 23), the sugar and ethanol industry is looking forward to crucial announcements that could significantly impact the economic and infrastructure landscape.
The sugar and ethanol industry, one of the key pillars of India’s agricultural economy, eagerly anticipates key announcements that could reshape their financial prospects. This year has presented challenges exacerbated by constraints on ethanol production and sugar exports. Consequently, stakeholders are calling for strategic government interventions to ensure stability and growth. Key demands from the industry include an increase in the Minimum Selling Price (MSP) for sugar, permission for sugar exports, a hike in ethanol procurement prices, and a reduction in Goods and Services Tax (GST) on flex-fuel vehicles. Additionally, support for sugarcane harvesters remains a critical expectation.
The government should strategically take steps to ensure that the industry remains on track from a financial perspective.
Due to the gap between the rising fair remunerative price (FRP) for sugarcane and the stagnant MSP, the government needs to address this imbalance, and raising the sugar MSP seems to be a solution for this. The sugar MSP has remained unchanged since 2019.
ISMA predicts a significant sugar surplus. According to the sugar body, the opening stock of around 56 lakh tonnes in October 2023, coupled with forecasted domestic consumption of nearly 285 lakh tonnes for the season, will result in a higher closing stock of 91 lakh tonnes by the end of September 2024. This estimated surplus, amounting to 36 lakh tonnes above the normative stock of 55 lakh tonnes, can potentially lead to additional costs for millers due to idle inventory and carrying costs. Therefore, the government should also allow sugar exports as it would enhance the financial liquidity of sugar mills and facilitate timely payments to cane farmers.
The grain-based ethanol industry claims to be facing an alarming situation due to various issues. Recently, the industry body, the Grain Ethanol Manufacturers Association (GEMA), sought immediate relief from the government. The government should address this issue as it will help boost ethanol production and meet the ethanol blending target of 20 percent by 2025.
The industry wants to bring the tax on flex-fuel vehicles on par with electric vehicles, which currently attract a tax of only 5 percent. If the government does so, it will accelerate the adoption of ethanol blending with petrol as fuel for automobiles. This move will directly contribute to reducing India’s fuel bill while simultaneously curbing carbon emissions from the transportation sector.
The budget holds immense promise for the sugar and ethanol industries, with stakeholders hopeful for comprehensive reforms that ensure their long-term financial stability and growth.
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