Govt eyes sugar import tax to aid farmers, mills.

India could slap an import tax on sugar before the start of its 2010/11 season in October, to protect farmers and millers from a flood of foreign supplies as global prices crash and the rupee hovers at a 19-month peak.

A tax by the world's top sugar consumer would discourage the imports India needs to build up stocks and put more pressure on New York raw sugar futures , which crashed to an 11-month low in April from a 29-year peak two months ago.

India's sugar cycle is also set to flip to a surplus, from the sharp deficit that boosted New York prices, as farmers have planted more cane in response to higher prices last year.

"The government will certainly impose a duty on imports," said Veeresh Hiremath, a senior analyst with commodity brokerage Karvy Comtrade. "But it will not do anything in a hurry."

Last year India permitted duty-free sugar imports and set limits on stocks as output fell sharply and prices soared. Now, millers want the government to prop up falling prices.

"The cane price was very high this year, and so was the production cost, said Ashok Jain, president of the Bombay Sugar Merchants Association (BSMA), referring to the crop year that began in October 2009.

"It was around Rs 28 to 29," he added, citing a figure equivalent to about 63 to 65 US cents per kg.

"Now millers are putting pressure on the government to stabilise falling prices."

Source : moneycontrol.com