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The Significance of the Sugar Industry in India
The Sugar industry is an important one to consider in the agrarian economy of India, providing a certainly large contribution to employment, economic growth, and rural development.
Its GDP contribution to India constitutes around 1 to 1.1 % percent of total GDP as of the 2023-24 financial year. The total Sugar industry’s output exceeds 1.3 lakh crore and in the 2023-24 season, the country produced around 320 lakh metric tonnes of which 24 LMC has been diverted to ethanol production.
The Industry supports livelihoods for around 5 crore people which comprises of the corresponding farmers and families. Further, approximately, 5 lakh workers are employed in the sugar factories across the country.
Recent developments and Challenges faced by the Industry
The Key sugar-producing states like Maharashtra, Karnataka, and Uttar Pradesh produced lower yields during the 2023-24 season because of adverse weather conditions and irregular rainfall.
On account of this, the government acted swiftly by banning Sugar exports for the 2023-24 marketing year to stabilize the domestic supply of sugar preventing the supply crunch that would have arisen.
In addition to this, this restriction was also imposed on the purview of controlling food inflation at that time because of the price surge in essential commodities like Rice, Wheat, etc.
Ethanol production – further weakening the exports
In view of cutting down costs of Crude oil imports, India has been actively engaged in the process of diverting a substantial part of sugarcane production to Ethanol production to support its BIO-Fuel program for the past decade.
This further reduced the production available for exports, affecting the export business and its associates.
Impact of the restriction
Domestic impact: The sugar production was sufficient for the domestic demand and consumption ensuring stability and preventing the inflation in its price that might have arisen because of the supply crunch.
Global impact: India has been the second-largest exporter of sugar, after Brazil, It’s the absence in the global market of sugar exports led to a price rise globally in 2023-24
Revival of exports in 2024-25
Managing Surplus Stock: India is now set to allow exports of 1 million tons of sugar this year. This move comes to manage the surplus of stock in sugar mills and to stabilize the domestic prices that are now lower due to the surplus availability.
Reasserting the Global presence: Countries that rely on sugar imports—particularly in Africa, Asia, and the Middle East—suffered from higher prices, due to India’s restriction on exports. Now, by allowing exports at a limited amount, India tries to balance the trade relationship and also reassert its global presence.
Probable impacts on Sugar stocks and Rural focused sectors
The decision to allow exports of 1 million metric tonnes of sugar can have a positive effect on Sugar company stocks, as it can boost their revenue and profits.
In addition, it can also add value to the overall agricultural economy, as a ripple effect, and benefit the sectors associated with Rural business development such as fertilizer companies, pesticide industries, Agrochemical industries farm equipment industries, etc.
It can induce the currency market positively for Import-associated businesses. On the other hand, the limited allowance of Sugar exports can help the sugar exporters as well.
Summary
While the release of export restrictions shall have a net positive effect on the Agrarian and Rural markets and industry, it will still depend on the global market sugar price volatility and any inflationary pressures that may arise due to the domestic supply management.
However, as the Sugar industry plays a vital role in the rural economy if the exports for this season go as planned, then the interconnected sectors can contribute to job creation, higher incomes, and improved living standards in rural areas, which, in turn, helps stimulate the broader Indian economy.
NEWS source: Reuters
Disclaimer:
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