Sugar Industry in India

In this article we will discuss about the progress and problems of the sugar industry in India.

Progress of the Sugar Industry:

Sugar had been manufactured in India by indigenous processes from early limes. The sugar so manufactured was not so refined but had a large demand in European markets. In the 1840’s India supplied 1/4 of the sugar needs of England.

However, the industry was not run on very sound lines. The unit of manufacture was very small while the methods used were both primitive and wasteful. Sugar was manufactured not directly from cane juice but ‘Gur’ and, what is more, hardly any machinery was used.

Understandably, when beet-sugar started arriving from Europe, refining in Indian factories became unprofitable and a real blow was struck at the industry. Between 1895—1900, over 180 of these small establishments in the U.P. alone had to close down.

The earliest attempts to start sugar mills were made first by Dutch planters in 1841—42 and then by British Planters. Both ended in failure. It was in 1903 that sugar mills on modern lines were successfully started in Bihar. Although foreign capital dominated the industry, Indian capital also began to be invested, especially in the U.P. In 1906, there were two Indian factories in Kanpur.

In the face of foreign competition and absence of any govt., assistance, progress was slow. The war of 1914—18 gave some encouragement as imports were reduced and import duties were high raised to 25% in 1922.

Sugar prices continued to rule high until 1924 when world supply once again began to overtake demand and low-price imports started flooding India. In 1925, the duty on superior sugar was raised to Rs.4.50 per cwt. which, at the then prices, amounted to about 30% ad valorem. The Depression brought about a headlong fall in prices so that even the higher rate of Rs. 61- cwt. was unable to check the growth of imports.

The Depression rocked the entire socio-economic structure of Indian society. The catastrophic fall in prices was a heavy blow to agriculture—-the mainstay of the Indian economy.

The resulting dissatisfaction of great sections of the Indian people heightened political tensions and stimulated the struggle for Independence. With a view to restraining the situation from becoming explosive, the govt., en­couraged the cultivation of sugar-cane in central and Eastern India. Why was this particular crop chosen?

There were several reasons for it. In the first place, sugar-cane was among the few cash crops then known to the Indian cultivator. By selling it on the market, the peasants could raise money to pay rent to the landlords, taxes to the authorities, and interest to moneylenders.

In order to stimulate the production of sugar-cane, it was necessary to raise domestic sugar production. This could be done only if sugar imports were drastically limited. In the second place, the growth of sugar production in India did not damage the interests of the British monopolies because most of the sugar came from Java, which was controlled by Dutch capital.

In the third place, a large part of the operating sugar refineries belonged to the British monopolies such as Begg-Sutherland, Octavious steel, Andrew Yule etc. Accordingly, when the case was referred to the Tariff Board on Sugar, it promptly recommended protection to the industry for a period of 15 years and proposed protective duty of Rs. 7.25/cwt. for the first seven years and Rs. 6.25/cwt. for the next 8 years.

The Govt., accepting the recommen­dations, incorporated the same in the Indian Sugar Act of 1932. In addition, the surcharge of 25%, which was introduced in 1931 for revenue purpose, was also continued.

The grant of protection “revolutionised” the Sugar industry. According to B.P. Adarkar, there are few instances on record which would parallel the sugar industry in respect of the rapidity of growth. In 1931-32, there were only 31 factories and their total production amounted to 1,58,000 tons.

Within a period of 4 years, after the grant of protection, the number of factories increased to 135 and production went to 9,19,000 tons. Imports of sugar correspondingly declined from 7,98,000 to is in the quinquenium 1924-25—1928-29 to 23,000 tons in 1936-37.

The revenue derived from the imports of sugar also fell from Rs.7 crores in 1932-33 to Rs.25.33 lakhs in 1937-38.The industry, as a result of expansion, provided new employment to 25 lakh persons.

Grant of protection to the sugar industry benefitted agriculture also. In 1930—31, only 20% of the total area under sugar-cane was covered by improved varieties, but by 1938-39, this had risen to 82%. Yield per acre improved from 12.3 tons per acre in 1930-31 to 15.6 tons in 1936-37. By 1937-38, the industry ranked third among all the industries in total capital and fourth in fixed capital.

Mention must be made of two important developments which took place in the industry.

As far back as March 1932, Bird and company, a large British firm connected with sugar industry, referred to the “danger resulting from competitive selling by rural factories” and suggested that “it would be as well carefully to consider a central selling organisation and not merely leave the industry to con­centrate on a scramble to increase production.”

The proposal, however, could not mature. Matters came to a head in 1935—39 when lack of adjustment between domestic production and imports led to accumulation of stocks and a fall in prices. The next year was also one of a bumper harvest.

The factories, though inclined to restrict production, were persuaded by the U.P. and Bihar govts, to crush more cane. This resulted in over-production and the problem of disposing of stocks became acute.

In order to regulate production and sale of sugar by factories, big industrialists like R.K. Birla, Khaitan, R.K. Dalmia and Karamchand Thaper, Joined hands to form the Indian Sugar Syndicate with a membership of 92 factories and holding about 60% of the then unsold stock of sugar in the industry.

This cartel of sugar factories soon gained legal recognition and all the mills in the U.P. and Bihar were compelled to sell sugar through the Syndicate only. This had an immediate effect on sugar prices. By 1938, the price of sugar was Rs.0.50 per maund more than the 1937 price, and soon it rose even higher.

The second development was the signing of the International Sugar Agreement by the Govt., of India in May, 1937. Under this Agreement, India was banned from exporting sugar by sea to any country except Burma for a period of 5 years.

At the same time, India was made a ‘free market’ where other countries could export sugar without any restriction. This ‘anamolous’ Agreement provides an interesting commentary on the anxiety of the British Govt., to help our struggling industries. The ban prevented India from exporting sugar at a time when there was a growing world shortage.

The Second Tariff Board on Sugar, appointed in 1937, recommended that the then existing import duty of Rs. 9.25 per cwt should be continued. The Govt., instead reduced the duty to Rs. 8.75 per cwt and extended the period of protection by 2 years.

Before the outbreak of the war, the home production of sugar was sufficient for India’s own requirements while she did not need to produce more in view of the International Sugar Agreement which did not permit exports from India.

With the fall of Java and Philippines into Japanese hands in 1941, the sugar industry of India, now the biggest in the world, assumed a unique importance as the only major source of sugar supplies to the empire countries not producing their own sugar. India’s neighbours- Iran and Iraq, also required 2 lakh tons.

Production, on the other hand, had declined from 12 ½ lakh tons in 1939-40 to 7.8 lakh tons in 1941—42, thanks to the restrictive policy of the govt. As a result, there developed an acute scarcity of sugar in the country and prices shot up to three times the pre-war level. The govt., now found it necessary to impose control on the price and distribution of sugar. In many urban towns, rationing was introduced.

Although production improved after the old restrictions were withdrawn in Sep­tember 1942, consumers still had to face considerable inconvenience and often resorted to black markets and paid exorbitant prices.

Profits in the industry, though substantial, were not as high as in cotton and jute, the average rate of return between 1938—47 being 6.9 as against 15% and 12.1% in cotton and jute respectively. And true to the Indian tradition, no effort was made to accumulate reserves for any emergency.

During the war, protection to the industry was continued under the Protective Duties Continuation Act. In 1947, protection was extended by another two years.

In 1949, the Board recommended continuance of protection for another two years but the recommendation was rejected by the govt., which extended it by one year only and asked the Board to conduct a fresh inquiry. The Tariff Board finally recommended withdrawal of protection in 1950.

With the launching of the Five year Plans, development of sugar industry also received impetus. The number of mills increased from 139 in 1950-51 to 200 in 1965-66 while sugar production rose by more than three times from 11.34 lakh tons to 35.11 lakh tons.

As a consequence, the area under sugarcane rose by 50% from 4.2 million acres in 1950-51 to 6.8 million acres in 1965-66 while the production of sugar-cane more than doubled from 57 million tons to 119 million tons. The increase in the yield per acre was not so impressive—– being only 17.42 tons per acre in 1965-66 as compared with 15.6 tons per acre in 1936-37.

This progress notwithstanding, the licensing policy of the Govt. brought about two important changes in the structure of the industry. In the First place, a large portion-a little less than 50% of the capacity licensed after 1952, went to the Tropical belt of Maharashtra, Gujarat, Andhra, Madras, Mysore and Kerala. This led to a considerable dispersal of industry to the more favorably suited tropical south.

The second was the significant development of the cooperative sector in the industry. Although four co-operative sugar mills had been established in the country between 1933—35, it was only after Independence that any significant development took place in this field.

Several new co-operative mills were licensed while the capacity of the existing ones was expanded so that, at the end of the Third Plan, out of 200 sugar factories in the country, as many as 57 were in the Co-operative Sector. They accounted for nearly 24.5% of the additional capacity licensed in the three plans.

Problems of the Sugar Industry:

Despite the impressive advanced made by the industry in the post-Inde­pendence period, it continued to be characterised by great instability as represented by large and recurring imbalances between the demand for and supply of sugar.

Emergence of acute shortages at one time and surpluses at another led to an alternation of control, decontrol and re-control. This situation was brought about, apart from cyclic variations in climatic factors such as rainfall, drought or floods and the prices of other competing crops like food grains, by the system of partial control in so far as it extended to factory sugar only but left the competitive gur and Khandsari free.

Another problem was that of high sugar prices brought about by three main factors. The first was the poor yield of cane per acre and the low recovery of sugar from sugar cane. Average cane yield in India was 17.1 tons per acre as against 80.4 tons per acre in Hawaii and 39.2 tons in Egypt. Sugar recovery as a percentage of cane was 11.4% in Hawaii, 10.9 in Egypt and 9.5 in India.

The second was the old worn-out plants which were no conductive to overall efficiency, economy in fuel consumption and labour productivity. The cost and price of sugar would have been still lower if only profitable use could be made of the by-products of the industry such as Bagasse, molasses etc.

Manufacture of power alcohol from molasses clashed with the British oil interests in the country and the govt., would not permit it. However, the manufacture of paper from Bagasse could be under-taken but it was not done. It was the high price based on high cost which led sugar beyond the reach of the common man and this created, at times, unsold surpluses.