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The Rediff Business Interview/ Mohan Gurnani

'Government is encouraging sugar imports at the cost of domestic sector'

India is the largest producer of sugar is the world. Sugar production in the current 1998-99 season will be in the region of 15 million tonnes as compared to 12.85 million tonnes the previous year. And India imports sugar!

That is what upsets Mohan Gurnani, president of the Bombay Sugar Merchants Association, who has been spearheading a high-decibel, media-friendly campaign for high anti-dumping duties and pro-domestic sector policies. He says import contracts for sugar under the open general licence scheme stand at 1.5 million tonnes, and unofficial reports say more than 50 per cent of that has been imported so far. Sugar, he says ruefully, can sometimes be bitter.

In India, sugar is labelled an essential commodity. As a result, the pricing of the commodity has always had political implications. Fearing a shortage of the commodity sometime ago, the government of India lowered the import duty on sugar. However, in the current scenario when domestic production is adequate enough to meet domestic consumption -- the lower import duties are turning out to be an unfair competing partner, argues Gurnani in an interview with Chris Ann Fichardo.

What is your grouse against the government of India?

We don't have any grouse. We are the largest consumer and producer of sugar. But having been the largest producer, it is very sad that we have to import sugar from countries like Pakistan, who are almost nonentities as far as sugar production is concerned.

So we feel that long-term measures should be taken whereby we can be self-sufficient.

We have reached annual production of 15 million tonnes or so and are capable of producing much more. We have an installed capacity for over 20 million tonnes. The only thing is the government has to have a long-term policy with regard to sugar production. That is why we are saying, rather than importing sugar and suppressing prices artificially and then falling into the trap of the cycle of shortages, the government would do well to encourage domestic sugar production.

In India, unfortunately, sugar cycle occur. That is, we have two years of surplus, two years of shortages and one year of normal production. This is basically due to the fact that the government tries to suppress the sugar prices -- because sugar is the only essential commodity in the hands of the government.

This artificial price mechanism results in the industry being unable to pay for the sugarcane prices. This has a trickle down effect, with the result that the growers shift their cultivation to another cash crop. And then the sugarcane production falls, leading to a cycle of shortages. The prices go up and the consumer pays.

At what price are we importing sugar?

It is not the import price that is important. All other countries have a very high import duty and attractive incentives for export. For example, Pakistan has a very good incentive for exports, tax rebates and all; on imports, they impose heavy duties. In fact, if you see other countries' import duties, they are to the extent of 200 per cent. India has imposed only five per cent; in fact the lowest elsewhere is 26 per cent, that is Pakistan. So we are actually in a way encouraging imports at the cost of our domestic cultivation.

Is sugar being "dumped" in India?

Yes, there is a dumping of sugar. If there is no import duty, countries like Pakistan and all will export to India. And due to the greater supply of sugar, the prices are kept artificially low, with the result the sugar production here falls and the cultivation can command only less rate for the crop harvested.

As traders, we would like free trade. But the import duty should be raised higher so that unnecessarily India does not end up importing sugar and sell it at a cheaper rate which ultimately affects the cultivator; though the consumer gets a little relief, it is only temporary. All we are asking for is a level-playing-field for all the players.

But if the consumer is benefiting, why are the trade organisations opposing import of sugar?

It's a myth that the consumer is benefiting. I've already spoken about the trade cycles. Now, when there is a surplus, the consumer benefits but when there is shortage the consumer pays through his nose.

The consumer benefits when there is a fair competition and enough production; if sugar is decontrolled maybe we would produce more, consume more, export more and that is when the consumer will benefit.

Having achieved the status of the largest sugarcane producer, we should now decontrol sugar, of course with safety measures like the monthly release mechanism and maintenance of buffer stocks. Only then can we have a better sugar economy.

Do you believe that New Bombay has the potential to be an international sugar exchange on the lines of the London and New York commodity exchanges?

India is the largest sugar producing country in the world -- Maharashtra is the largest producer in India and Bombay is the largest consumer in the country. We also have a market in New Bombay which has all the infrastructure. In fact, in many ways, it is better than London's system, in terms of infrastructure, proximity to sea-routes and telecommunications. We are the best.

London hardly produces any sugar now. Despite that, London is the world trade centre in sugar. So if London can become the WTC, why can't Bombay -- which can boast of the largest sugar producing country, the largest sugar producing state and the largest consumer and, above all, world class infrastructure?

What stops us from becoming the WTC? The governmental apathy and bureaucratic hurdles. We have not groomed the trade the way we should have and for that I blame the government for unnecessary controls and shortsightedness. They don't have a vision for the future.

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