In fact when the government, after much dilly-dallying, did increase import duties on sugar, Pakistan announced a sales tax waiver over and above the existing export subsidy on sugar. As a result, the effect of a higher import duty in India was more than negated. While it is also true that the high cost of indigenous production is the result of uneconomic sizes of most Indian plants, faulty government policy can be squarely blamed for such a condition.

Secondly, while domestic producers have to compulsorily sell 40 per cent of their production to the government at administered prices, there is no such requirement for importers. As the administered prices are about 15 - 20 per cent lower than the cost of production, producers suffer losses on their sales to thegovernment.

This, in turn, makes importers even more cost-competitive. These two discriminating factors justify a further hike in the import duty protection for domestic manufacturers. However, the government has been loath to do so for fears of rising prices in the domestic market.

In such a scenario, sugar producers themselves have little option but to turn to imports. Allowing manufacturers to import, however, has its own drawbacks. The obvious one being lower capacity-utilisation which in turn would mean lower sugarcane purchases by sugar mills.

Farmers would therefore be faced with unremunerative prices for their cane and would shift to other crops. As a result, imports would become even more essential as raw material for sugar production would be in short-supply. When that situation arises, international sugar prices would cease to be low and despite best efforts, domestic prices too would rise.

Even if manufacturers are not allowed to import, such a situation is just as likely for continuedlosses will in any case force manufacturers to cut production. Perhaps the best step, therefore, would be to increase import duties to create a level playing field for the manufacturers.