INDIA: Pakistani subsidies forced import duty increase to 100%

Published: 02/14/2018, 10:02:09 AM

A recent announcement by the Sindh government to offer a subsidy for sugar exports - on top of another dole-out by the federal government of Pakistan - to cut a massive inventory, was the trigger for India to double its import duty on the sweetener to 100% and stop potential dumping from the neighbour, according to India's Financial Express newspaper.

An analysis of the viability of supplies from the neighbour shows a 70% customs duty is required to stop likely imports from Pakistan via Mumbai now. However, to discourage imports through the Wagah border, the duty needs to be as high as 100%. Excluding the additional subsidy by the Sindh government, a 50% customs duty was just about enough to check imports from Pakistan even through the Wagah border, a senior food ministry official said.

Pakistan's federal government is offering a cash subsidy of PKR10,700 (US$96.4) per tonne for sugar exports, while the Sindh government has announced an additional PKR9,300 per tonne, although the latter is yet to notify its decision.

The two subsidies make the Pakistani sugar as cheap as INR15,590 (US$243) per tonne for export purposes, said senior Indian sugar industry executives. Taking into account shipment charges of roughly US$20 from Karachi to the port in Mumbai, a 70% import duty (INR11,817), a 5% goods and services tax (INR844) and expenses for loading/unloading from the container and transportation to the local market (INR2,000), the cost of imported sugar from Pakistan in Mumbai would be around INR31,543 per tonne, just a tad higher than the domestic sugar price of INR31,400 in the wholesale market there, said the executives.

Similarly, considering all these factors, the cost of imported sugar from Pakistan in Amritsar via Wagah border would be INR30,980 per tonne (at 70% import duty) and INR35,949 (at 100% duty), said. Wholesale prices of sugar in Amritsar, often supplied from Uttar Pradesh, are ruling at `36,000 per tonne.

One of the sources said the government wanted to raise the import duty to a "prohibitive level" to completely shut the window for cheaper, heavily-subsidised supplies from Pakistan, aimed at preventing prices of domestic sugar to depress further at a time when domestic prices, as such, were ruling below costs due to high cane costs.

The Centre fears that any import-induced sharp fall in domestic sugar prices will erode mills' ability to pay cane farmers on time ahead of the 2019 general elections. The reluctance of states like UP to reform their cane pricing mechanism by linking the price of the raw material to that of sugar has only squeezed the scope for the Centre to adopt unrestricted trade policies and severely dented mills' competitiveness in the global market.

Sugar prices in Mumbai, which had been falling since the beginning of the current marketing year in October 2017, went up from INR31,060 per tonne just before the government's decision to double the duty to INR31,400 on Monday.

Thanks to a bumper harvest, Pakistan could end the current marketing year through September with massive surplus stocks of 3.38 million tonnes, even if it managed to export an estimated 1.27 million tonnes, the International Sugar Organization had said in November 2017. The neighbour's sugar consumption has been pegged at just 5.2 million tonnes in 2017/18.

India's sugar production rebounded in 2017/18 on plentiful showers and higher planting of a better cane variety. Output could touch 26.1 million tonnes in 2017/18, up around 29% from a year earlier, according to an estimate by the Indian Sugar Mills Association. Consumption may remain between 24-25 million tonnes. Last year, India allowed sugar imports of limited quantities at concessional/zero duties to tide over a domestic shortfall.