SUGAR INDUSTRY IN INDIA

Economics

INTRODUCTION
The sugar industry is one of the most important agro-based industries in India. It impacts the rural livelihood of nearly 50 million sugarcane farmers and provides direct employment to about 5 lakh workers in sugar mills, apart from indirect employment in transport, trade, machinery and allied activities. India is the second-largest producer of sugar in the world after Brazil and also the largest consumer of sugar. The annual output value of the Indian sugar industry is around Rs 80,000 crore.

India cultivates sugarcane over nearly 5 million hectares, accounting for about 2.57 percent of the gross cropped area, making it an inclusive crop involving millions of small and marginal farmers. Major sugarcane producing states include Uttar Pradesh, Maharashtra and Karnataka. However, sugarcane production declined by about 8.6 percent between 2019 and 2020 due to climatic and market-related factors.

SIGNIFICANCE OF SUGAR INDUSTRY

Agricultural Growth
The sugar industry is the second-largest agro-based industry in India after textiles. It plays a crucial role in rural economic development by linking agriculture with industry. The industry has an estimated annual turnover of over Rs 41,000 crore and contributes around Rs 2,500 crore annually in taxes to the government.

Employment Generation
The industry generates employment for nearly 7.5 percent of the workforce associated with agro-based industries. It supports livelihoods of farmers, factory workers, transporters, traders and service providers.

Energy and By-products
Modern sugar mills function as sugar complexes producing sugar, ethanol, bio-electricity from bagasse, bio-manure and chemicals. These by-products contribute nearly 1 percent to India’s GDP and help reduce dependence on fossil fuels.

Livestock Support
Molasses and by-products of sugarcane are used as nutritious fodder and for alcohol production, supporting livestock and allied rural activities.

Skill Development
Sugar manufacturing is an agro-industrial process involving mechanical, chemical and electrical engineering skills, contributing to broader skill development.

Green Smart Sugar-Agro Complex
The industry is transitioning towards a Green Smart Sugar-Agro Complex model focusing on renewable energy, ethanol blending and sustainable production.

ISSUES AND CHALLENGES

Sugarcane Related Issues
High Cost of Production
High cane prices, inefficient technology and heavy duties raise production costs. Most mills operate at small capacities of 1000–1500 tonnes per day, preventing economies of scale.

Low Yield
India’s sugarcane yield is around 64.5 tonnes per hectare, much lower than countries like Java and Hawaii.

Short Crushing Season
Sugar production is seasonal, lasting only 4–7 months, leading to idle capacity and financial stress.

High Water Consumption
Sugarcane is a water-intensive crop. In Maharashtra, sugarcane occupies only 4 percent of cultivated land but consumes nearly 70 percent of irrigation water.

Price Volatility
Mismatch between supply and demand leads to fluctuating sugar prices, adversely affecting both farmers and mills.

Mill Related Issues
Small and Economically Weak Mills
Many mills are not financially viable due to low capacity and poor management.

Obsolete Technology
Old machinery, especially in Uttar Pradesh and Bihar, reduces efficiency and productivity.

Competition from Gur and Khandsari
Khandsari and gur industries operate with lower taxes and can offer higher cane prices to farmers.

Regional Imbalance
Around 60 percent of sugar production comes from Maharashtra and Uttar Pradesh, while northeastern states, Odisha and Jammu & Kashmir show limited development.

Market Related Issues
Low Per Capita Consumption
India’s per capita sugar consumption is only about 16.3 kg per year compared to nearly 49 kg in the USA.

Accumulated Cane Dues
Sugar mills often fail to clear farmers’ dues due to low sugar prices. Outstanding dues crossed Rs 22,000 crore in 2017–18.

Government Price Controls
Frequent policy interventions such as stock limits, export restrictions and price controls distort market signals.

Other Structural Issues
Minimum Distance Norm
The 15 km distance norm between sugar mills under the Sugarcane Control Order distorts competition and restricts farmer choice.

Cane Reservation and Bonding
Farmers are bound to sell cane only to designated mills, reducing bargaining power.

Restricted Trade Policy
Export and import controls limit India’s participation in global sugar trade.

GOVERNMENT INITIATIVES

Fair and Remunerative Price (FRP)
Introduced in 2009, FRP replaced the Statutory Minimum Price to ensure minimum assured returns to farmers.

State Advised Price (SAP)
States like Uttar Pradesh declare SAP, usually higher than FRP, to protect farmer income.

National Policy on Biofuels, 2018
Targets 20 percent ethanol blending by 2030, boosting ethanol production from sugarcane.

Ethanol Production Flexibility
Mills are allowed to produce ethanol from sugarcane juice and B-molasses, not just C-molasses.

Export Subsidies
India has been allowed to continue sugar export subsidies till December 2023 under WTO provisions.

Deregulation of Sugar Sector
Mills are free to sell sugar at market prices and quantities, improving liquidity and cash flows.

High Yield Varieties
New sugarcane varieties with higher yield and recovery rates have been introduced, especially in Uttar Pradesh.

FUTURE PROSPECTS AND WAY FORWARD

RANGARAJAN COMMITTEE RECOMMENDATIONS

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Subject: Economics

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