In conversation with Anil Singhvi, expert Varinder Bansal decodes the impact of the subsidy on the sugar sector


Zee Business editor Anil Singhvi said the subsidy on the sugar sector had been reduced to Rs 4,000 from Rs 6,000. He said sugar prices were skyrocketing across the world.

Varinder Bansal, founder of Omkara Capital, said sugar stocks should be bought if their stock prices go down. He said the grant was given for the last 3-4 years. He said the subsidy amount was Rs 8.32 per kilo in 2018-19, Rs 10.44 per kg in 2019-2020 and Rs 6 per kg in 2020-2021. Investors should understand that the price per kg has already been reduced from Rs 10.44 to Rs 6 last year.

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Bansal said the government mentioned when initiating the export subsidy that the amount of the subsidy would be reviewed at regular intervals based on the amount of sugar sacrificed for ethanol. Bansal said the excess supply of sugar must be removed so that demand and supply match closely. So the government has said how much they can export and how much they can sacrifice for ethanol. He said that the diversion of ethanol is good and quick of sugar. The government therefore decided to cut profits as the sugar companies benefit.

Bansal said that in 2023 no export subsidies will be granted. Considering the subsidy amount of 4 rupees and world sugar prices close to 17 dollars, the realization amount is 31.4 rupees, which is much better than the domestic prices. He said the sugar companies will still report their profits despite the reduction in the amount of the subsidy.

Bansal said the export quota for 2020-2021 was 6 million tonnes. Of this amount, 5.7 million tonnes have already been produced. This means that the amount of the reduced subsidy will be 0.3 million tonnes, which is not of concern, Bansal explains.
Bansal said it’s important to understand that producing ethanol from sugar is important. He said that 2 to 2.5 tonnes of sugar will be sacrificed this year and that 3 to 3.5 tonnes of tonnes will be sacrificed next year. This should be a priority rather than reducing the amount of the subsidy. There will be no financial impact on the sugar companies, Bansal explains.

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