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Will new incentive package script revival of sugar factories in Bihar?

Kunal Bose/ 04 Dec 12 | 12:00 AM

In the not-so-distant past, Bihar used to figure prominently among India's cane growing states, and also as a major producer of sugar. But over the years, industry capacity shrank beyond recognition to 11 cane crushing units from 28 till the late 1980s. This is primarily because production cost is not covered by realisation from sugar sales, and also due to state indifference to the plight of factories staying in the red most of the time.

However, in recent years, the "spirited intervention" of the Nitish Kumar government has ignited hopes of a revival. To the industry's surprise, the chief minister himself is overseeing the revival of an agro-based industry, which was once the "pride of Bihar."

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The commitment of Janata Dal (United)-Bharatiya Janata Party coalition government to the cause of sugar first found expression in an incentive package announced in 2006. Not only did the package ensure that there was no further capacity contraction, it also created the condition for building new factories, expanding cane crushing capacity of the ones in operation and commissioning of ethanol units in mill downstream. The state government claims that its policy initiatives are the reason for the sugar industry receiving investments of around Rs 600 crore lifting in the process the industry's daily cane crushing capacity from 37,000 tonnes to 68,000 tonnes. At the same time, three factories have gone ahead to build ethanol plants, not with great success though with large capacity remaining unused for most of the year.

Inspired by the highly rewarding experience of Brazil, the US and many European countries to produce and use biofuels in increasingly larger quantities, New Delhi ordained oil marketing companies to blend 5 per cent ethanol, a sugar by-product, with fossil fuel.

The distressingly low ethanol capacity use in Bihar, in spite of regular demand from oil companies, is resulting from skewed allotment of rectified spirit by the state excise department. Incidentally, the ethanol feedstock rectified spirit is derived from sugar by-product molasses. But once rectified spirit is made, its allotment becomes the responsibility of the state, which has to consider the claims of alcohol and chemical sectors and now also of ethanol makers.

Not that every sugar factory in Bihar has a distillery to make rectified spirit. "The ones with distilleries are, however, at the receiving end. This is because the excise department has not revised rectified spirit prices for three years. In the meantime, molasses prices decided by negotiations between sugar factories and distilleries are up by Rs 55 to Rs 195 a quintal. Even sugar factories owning distilleries are required to buy large quantities of molasses from outside to make good use of distillery capacity," says O P Dhanuka, former president of Bihar Sugar Mills Association (BSMA). The industry is now hopeful that the anomaly in prices of molasses and rectified spirit will be corrected. So, allotment of rectified spirit will also be rationalised in a way as to enable the state to meaningfully participate in national ethanol blending programme. The question now is whether the long-awaited correction will happen, coinciding with the promised early announcement of a revised incentive policy for the sugar industry for which the ball has been set rolling.

The chief minister, along with his deputy and the secretaries concerned, recently met with sugar industry officials and reportedly responded positively to the 10-point suggestions put forward by BSMA president C B Patodia. The CM wants a proper review of all industry suggestions before the draft incentive policy is put up on the official website. Providing an example for most other states, the government will invite the industry to suggest any amendments to the draft before it is fine tuned into a new package of incentives. The industry is hoping that the new package for sugar factories will in many ways be a mirror reflection of incentives provided in the 2011 industrial policy. The government is ready to extend a helping hand to sugar factories, so that production of cane and the sweetener continues to rise steadily from 17.747 million tonnes (mt) and 451,000 tonnes, respectively, in 2011-12. "The local sugar industry will find redemption only if the new incentive scheme is addressed to incentivise farmers to bring more land under cane cultivation giving them access to new strains of cane with much higher productivity and sugar content," says Dhanuka.

As Patodia says, this calls for thorough revamping Sugarcane Research Institute at Pusa or creating a new research centre modelled on Vasantdada Institute in Pune. The fact is, unless a lot more land than 235,000 hectares now is committed to cane cultivation, cane yield is substantially stepped up from an abysmally low 51.4 tonnes per hectare, and sugar recovery gets a major boost from 9.3 per cent, creating new cane crushing capacity will not make sense.

BSMA wants an entry tax on sugar coming to Bihar from cost-effective Maharashtra and Karnataka. Since sugar mill machinery is not manufactured in Bihar, local sugar industry is wholly dependent on imports from other states. Such machinery invites VAT of 12 per cent. The operative incentive policy, however, offers an incentive of 10 per cent on machinery hurting cost competitiveness of sugar factories.

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