Government Subsidies https://www.wsj.com/articles/india-buried-in-sugar-tries-to
ID: 1162728 • Letter: G
Question
Government Subsidies
https://www.wsj.com/articles/india-buried-in-sugar-tries-to-dig-out-1527591604?mod=djem_jiewr_IB_domainid
The Indian government sets price guarantees for growing sugar but the farmers are only paid when refiners sell the sugar. The price of sugar is currently so low that refiners are hesitant to sell of their huge and growing sugar stockpiles. Refiners are hoarding the sugar and waiting for a better price or better incentives to sell. The Indian government wants to incentivize the refiners to sell the sugar, but if the refiners dump the sugar on the global market at too low a price, India risks sanctions from the WTO.
Why is India experiencing a sugar glut?
Explanation / Answer
In India Commission on Agriculture Commodities Prices decides the prices for the food crops. Indian government announces Minimum Support Price for 23 food crops and undertakes procurement of food grains at these prices. However government concentrates only on four food crops mainly sugarcane, wheat ,rice, cottan. So the pricing policy is preventing framers from planting other crops and concentrates mainly on these food crops.
Another reason for distortion is huge subsidy Indian government is providing . Central government is providing subsidy on fertilizer , electricity and state government is providing subsidy on water etc.
Another reason is that in order to gain power political parties make promises to farming community and when they come to power they keep increasing the MSP which incentivizes farmers to grow more surcane.
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