Budget 2006-07: Sugar

The Rs 300 bn Indian sugar industry is the second largest in the country’s agro-processing sector. It is also highly fragmented. India is the world’s second largest producer of sugarcane, after Brazil, and accounts for around 5% of global sugar production. The demand for sugar in the country touched 18 MT in 2005 and stock consumption ratio fell to 20% in 2005 from 49% in 2004.

Budget Measures Excise duty exemption on sugar (other than Khandsari sugar), manufactured without the aid of power is being withdrawn. Such sugar will now attract excise duty at Rs 38 per quintal (levy sugar) or Rs 71 per quintal (free sale sugar) as the case may be.  Budget Impact Sugar, being an essential commodity of daily use for the masses, the reduction on the excise duty is a good move.  Industry wish list Reduction in excise duty on molasses (currently Rs 750 per tonne). It can be levied at 8% ad valorem or Rs 170/tonne. Extension of tax benefits to co-generation power u/s 80IA for another five years. Extension in white sugar re-export obligation period. Promote ethanol as a bio-fuel by way of incentive and reduction in excise duty on ethanol-doped petrol.  Sector outlook The sugar industry in India is supply-deficient. The industry is likely to face production shortfalls in the year 2006. Deficit inventory coupled with rising demand of sugar and ethanol has changed the fortunes of Indian sugar companies. From conventional mills, companies are now changing to the multi-product mills. Going forward, we are positive on the prospects of the domestic sugar sector. Budget Impact:  Sugar Sector Analysis for 2007-08 Latest: Performance Of Sugar Stocks

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