Why India needs to relax curbs on sugar export
Indian policymakers need to understand that the mere announcement of export curbs signals that there is a serious supply shortage. Further, frequent export curbs create complications for foreign buyers and make India an unreliable supplier
One type of inflation the Indian government should not worry about at all is of sugar prices. Making sugar artificially cheap — by controlling its prices through export bans and monthly sales quotas — over-incentivises its use by manufacturers of popular breakfast cereals, soft drinks and juices, and sweets. That leads to unintended health consequences, the cost of which is not being factored in by India’s policymakers.
The government decided to extend restrictions on sugar exports beyond October 31 without specifying an end date. The supporters of the export curbs contend that they are aimed at reining in food inflation given that sugar production is likely to fall by 8 percent in the current crushing season. Besides, these curbs will also ensure a steady supply of feedstock to cane-based distilleries for the production of ethanol. It is argued that allowing sugar exports will reduce domestic availability and worsen food inflation. However, the weight of sugar in food and beverage price inflation is less than 3 percent, and in retail (CPI) inflation, it’s just 1.36 percent. Clearly, high sugar prices can’t be responsible for food inflation.
The major culprit for food inflation is high cereal prices (CPI weight 9.67 percent) and sharp seasonal fluctuations in supplies of perishable horticultural products i.e., vegetables and fruits (combined CPI weights 9.93 percent). High cereal prices can be largely attributed to frequent hikes
in minimum support prices, which are intended to boost farmers’ income, amidst shamefully low farm productivity. Yet such market-distorting policies continue. Also, a serious lack of post-harvest infrastructure such as cold chains has been making it difficult to manage the impact of seasonal
variations in supplies of perishables on food inflation. Controlling sugar supplies (by banning exports or imposing monthly sales quotas) won’t be enough to rein in food inflation.
Steadily increasing cane output — because of the continuation of cane price populism — requires steadily rising cane crushing capacities. Preventing sugar mills from making profitable overseas sales will discourage them from ramping up capex. That will hamper future supply responses and make price management even more difficult.
Source Link :- https://www.moneycontrol.com/news/opinion/why-india-needs-to-relax-curbs-on-sugar-export-11862821.html
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