The mess in the sugarcane economy can lead to electoral defeat. The sugarcane ecosystem shows the worst side of India’s agricultural policy. It has two layers of price fixing. The Centre fixes a minimum price. Then the state government takes a hand imposing state advised price (SAP). SAP often does not take into account the market price of sugar and is largely responsible for agrarian distress in the sector. The states which are the worst offenders are UP, Uttarakhand and Tamil Nadu. There are two aspects of a bailout package under consideration. Additional demand for sugarcane by-products may be created by further encouraging the use of ethanol blended petrol. Besides, a price support measure may be introduced through the mechanism of buffer stocks. But neither solution is likely to address the crisis. Additional sources of stress may be generated. Sugarcane making is a water intensive process. India has 7% of world population but only 4% of fresh water supply globally. The problem may be aggravated by the application of ethanol petrol which may affect water availability.
A buffer stock which does not take into consideration the adverse impact of SAPs is not a healthy solution. SAP ahead of elections has been seen to be irrational. A bailout package with banks passing through reforms may also cause repetition of mistakes in handling the sugarcane industry. Pricing should be freed from distortions and sugar mills need protection. Cane area reservation should be abolished. Otherwise the steps taken will only cost money without having any good effect.
