Burden on consumers as millers win Rs6.5b subsidy

ECC allows export of 500,000 tons, Rs13 per kg in subsidy

ISLAMABAD:

An amount equal to 16% of the Rs40 billion mini-budget introduced last week would be given to a handful of sugar mill owners by collecting taxes from the people, as the government on Monday approved Rs6.5 billion in subsidy on the export of half a million tons of sugar.

Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the cabinet approved export of 500,000 tons of sugar and Rs13 per kilogramme subsidy for the influential barons.



Sugar prices in the international market are lower than the domestic prices. The millers have been directed to export the commodity by March next year amid concerns that the decision would put pressure on prices in the domestic market.



The ECC allowed sugar export despite opposition from the Ministry of Industries and Production that raised questions about claims of surplus stocks by the Pakistan Sugar Mills Association (PSMA).

The ministry also wanted that instead of subsidising international consumers, the government should sell sugar at subsidised rates to domestic consumers.

Irregular procedure

Former president Asif Ali Zardari and the ruling Sharif family will be among the main beneficiaries of the decision. The summary for the ECC was prepared on December 6 (Sunday), which was an official holiday, highlighting the haste in taking the decision.



In violation of the rules, the summary was not circulated among the ministries before the ECC meeting.

PSMA representatives met with Prime Minister Nawaz Sharif last week, seeking support for export and subsidy, according to the ECC summary. The PM constituted a committee that held two meetings to finalise the assistance for the millers.

The federal government has not made any budgetary allocation for granting the subsidy on sugar export and it will have to either cut expenditure from another head or approve a supplementary budget.

Budget issues

On November 30, the government had introduced the Rs40 billion mini-budget through bypassing parliament. Additional taxes were imposed to protect the budget deficit target of Rs1.318 trillion or 4.3% of gross domestic product for the current fiscal year.



The Rs6.5 billion sugar subsidy is 16.3% of the amount that the government will collect as a result of the mini-budget.

The budget-in-brief document of the finance ministry showed Rs3.25 billion in subsidy to support sugar export in the last fiscal year. For this year, the government has not made any allocation for supporting exports.

However, it has allocated Rs1.3 billion for freight subsidy on sugar export. Out of Rs13, the ECC approved Rs3 per kg in freight subsidy.

These millers had got Rs4.5 billion in subsidy in the last fiscal year as well, which the government gave by approving a supplementary budget. In December last year, the ECC had allowed export of 650,000 tons of sugar and approved Rs10 per kg subsidy including Rs2 for freight subsidy.



Since the government has not made any budgetary allocation for the export of sugar, it will have to justify the additional expense to the International Monetary Fund.

“We have some space in the budget under the head of subsidies,” said Finance Minister Ishaq Dar while talking to The Express Tribune.

For the current fiscal year, the government has allocated Rs137.6 billion in subsidies including Rs118 billion for electricity subsidy. The subsidies are Rs106 billion or 43% less than last year. The PSMA representatives claimed that sugar stocks stood at 1.1 million tons and another 5.13 million tons would be produced in the current crushing season. Out of that, the annual consumption will be 4.8 million tons.

The Ministry of Industries was of the view that the millers were not providing sugar to the Utility Stores Corporation and was more interested in exporting it by availing a subsidy.

Published in The Express Tribune, December 8^th,  2015.

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