In 1997-98, sugar was again imported after a gap of over two years. Spurred by lower estimates of sugar production, low international prices and zero import duty, traders found it profitable to import sugar. This continued till April 1998 when the government imposed custom duty of 5 per cent and a countervailing duty of Rs 850 per tonne on sugar imports.

In the 1997-98 season, according to the Indian Sugar Mills Association, 9.35 lakh tonnes of sugar was imported. Against an availability of 203.11 lakh tonnes, sugar consumption (including exports of 69,000 tonnes) was 149.07 lakh tonnes, leaving a surplus of 54.04 lakh tonnes at the end of the season.ISMA estimates production of sugar in 1998-99to touch 155 lakh tonnes against 128.54 lakh tonnes in the previous season. Sugar availability at 212.04 lakh tonnes against an anticipated consumption of 150 lakh tonnes would leave a surplus of 62.04 lakh tonnes at the end of the 1998-99 season, ISMA estimates show.

The ex-factory sale realisation of sugar dipped to Rs 1300 level in the last two months of 1998 from a high of Rs 1366 in May 1998. Sugar prices, industry sources feel, will remain subdued in the current season largely due to substantial sugar imports (expected to be around 3 lakh tonnes in the 1998-99 season) and the expected increase in sugar production at 155 lakh tonnes.

In 1998, the government took a major policy initiative by freeing the sugar sector from licensing requirements on August 20,1998. As a result, sugar plants of any capacity can be set up anywhere in India, subject to a minimum distance of 15 km from an existing sugar unit. In addition, the government has also removed the stipulation on minimum economic sizecapacity.

There are 200 licences pending as on date and latest information indicates hat about 10 to 15 units are under implementation. Most of the new licensees have not yet begun implementation and industry feedback suggests that the government is contemplating revoking these licences.

Under the delicensing era, new units are not entitled to any incentives which would put them at a disadvantage vis-a-vis existing units going for expansions which are entitled to sell their entire production in the free market subject to a quantitative limit.

Industry does not expect delicensing to have any immediate impact as the existing capacities are sufficient to meet the demand for the next five years. Besides, scope for expansion of capacity in the cooperative sector is limited because no further incentives would be available for increases in capacity.

Industry expects a major shakeout and consolidation of sugar capacities by the more efficient players. Many small units with weak financials will be up for saleas they would have no incentives for modernisation or expansion.Further, for the resourceful, expansion rather than greenfield ventures makes more economic sense as any expansion up to 5000 tonnes crushed per day can be partially financed by soft loans from the SDF.

Industry sources maintain that the margins of sugar companies will be under pressure for the next one year due to the combined effect of continued imports, higher expected production in 1998-99, higher cane prices and levy sugar obligations.