India considers surcharge on sugar to subsidise farmers

(Reuters) – Finance Minister Arun Jaitley said on Friday that five state ministers would consider ways to subsidise sugarcane growers suffering from weak prices, including possibly making consumers pay a surcharge in addition to the Goods and Services Tax (GST).

Expectations of a bumper sugarcane crop this year have led to falling prices and caused financial losses for sugar mills, which are seeking federal and state government support to cover what they owe farmers.

India is the second largest sugar producer after Brazil, and Prime Minister Narendra Modi is keen to placate the country’s 50 million cane growers, who have an influential political lobby.

Karnataka, a southern state that is among the largest cane growers, holds state elections next week, while a national election is due by early next year.

Earlier this week Modi government decided to offer a subsidy of 55 rupees per tonne to sugarcane farmers and it is now considering ways to raise funds through an additional levy on retail sugar prices.

India had abolished a surcharge on sugar, or cess, after the introduction of the nationwide GST last year, but the federal government has proposed reintroducing it in response to requests by some states.

Speaking to reporters after meeting state and federal finance ministry officials attending a GST council, Jaitley said five ministers were expected to deliver other recommendations in the next two weeks, including “the imposition of a cess or temporarily increasing the tax.”

Wholesale sugar prices fell by more than 10 percent in March from a year ago.

Industry officials last month said the amount owed by sugar mills to farmers could leap to a record 250 billion rupees ($3.8 billion) in the 2017/18 season.

Analysts said a proposed additional levy of 2-5 percent would undermine the goal of the GST, which had been hailed as a landmark reform that would create for the first time a single market for India’s 29 states.

Atul Gupta, a senior director at Deloitte India, said that reintroducing a surcharge would send a wrong signal, and urged the council to focus on steps to reduce evasion of GST in order to raise funds. (Reporting by Manoj Kumar)