Duty on sugar: Why should consumers suffer?

Published: September 04, 2018 21:51:31 | Updated: September 06, 2018 22:23:51


'One doth the scathe and another hath the scorn' is an adage that fits in well with the government's reported move to raise the import duty on both raw and refined forms of sugar, a widely used sweetener. Some key government agencies, including ministries of industries and commerce, are set to discuss the issue of duty-hike tomorrow (Thursday). The fact remains that it is none but the ministry of industries has been pursuing the issue of duty-hike to help the cash-strapped state-owned sugar mills against the backdrop of a continuous decline in sugar prices in the international market. The government in 2015 imposed 'specific duty' on both raw and refined sugar along with 20 per cent regulatory duty. Since then the rates have remained unchanged.

But the move to raise the duty goes against the interest of the consumers. The price of sugar has dropped significantly in the international market---from US$ 0.43 a kilogram in the first quarter of 2017 to US$ 0.29 a kg in the same period of 2018. The price of the item also declined in the domestic market. But the local traders in keeping with their tradition reduced the price only nominally. Sugar price should have been at much lower level in the domestic market had the traders faithfully followed the international price chart. Traders usually respond promptly to international prices of any item when it goes up.

The truth is that the sugar price has been kept at high level artificially to help the state-owned inefficient sugar mills survive. The cost of production of sugar in these mills is abnormally high because of their obsolete machinery, inefficient management and massive irregularities ---financial or otherwise. The government usually avoids tax on essential food items. Sugar is an exception. The item has been subjected to both special tax and regulatory duty with a view to keeping its price at high level so that government sugar mills can sell their produce. However, this anti-consumer stance of the government is also not working as the state-owned mills are finding it hard to dispose of a large stock of sugar. These mills are forced to sell sugar at a price much lower than their cost of production. Yet their sugar remains pricier than the imported variety and traders find no reason to lift it. Under the circumstances, the state-owned sugar mills have been incurring substantial financial losses every year. In fact, these sugar mills are nothing but a pile of junk and they have no future.

So, the reported move to raise duty on sugar further would be irrational as it would amount to punishing the consumers for no fault of theirs. It is the management of the state sugar mills who have failed utterly to run their operations efficiently. The government should devise a proper scheme to modernise its sugar mills or transfer those to the private sector. The burden on account of state sugar mills appears to be too heavy on the government.

 

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