Thoughts & Ideas

Thursday, February 23, 2006

Sugar Industry and Bihar’s Economic Recovery

Over the years, Bihar which used to be among the most forward looking, best governed and industrialised States of the Indian Union has lagged behind. In the process the State has become famous for all the wrong things – low literacy rates, lawlessness, low income, poor economic growth, lack of infrastructure etc.

A fresh beginning has to be made but the difficult question is where to start from with problems all around. Hopefully the new political State leadership would set an example and tackle basic issues of administration.

Many people hold the opinion that the present sad state of affairs and the resultant economic backwardness is because of wide spread lawlessness in the State. However, I beg to differ, and state that the lawlessness is the result of economic backwardness and not its cause. Bihar has been blighted by some poor policy decisions, mainly:

(a) freight equilisation policy which robbed the state of its natural advantages without any compensation, and
(b) non implementation of land reforms due to lack of vision by its political class. This over time improvished both the land owning and the land tilling classes due to inability of land alone to sustain the growing population and its rising aspirations due to its limited productive capabilities.

It is no use crying over spilt milk and a way forward has to be created for the economic and social betterment of its people. Since resources are always in short supply one has to see what are the natural advantages which may be leveraged to leap frog the economic development of the State.

With rising oil prices, one such opportunity is presented if the State focuses on its Sugar Industry, an area in which it has some unique advantages. Bihar which used to produce over 40% of undivided India’s sugar in 1947, now produces less than 3%. This is inspite of having various major natural advantages for production of sugar cane, such water availability, conducive weather, fertile land, and cheap labour. The natural advantages got negated due to some man-made impediments, such as:

(a) absence of good roads, which make it difficult to bring cane to the factory in time and delays lead to fall in sucrose content.
(b) failure of local agricultural universities to develop new cane varieties suited to Bihar with high sucrose content, resistance to disease etc.
(c) uneconomic size of sugar factories (some were even of 700 – 900 TCD capacity)
(d) non modernization of mills / outdated technology which make the mills very inefficient.

These factors resulted in the sugar industry in Bihar falling sick which was sought to be remedied by whole sale nationalization of mills. However, the basic problems were never addressed systematically and the situation of nationalized mills got worse.

Concentrating on development of the sugar industry would give rich dividends in kick starting Bihar’s economic development. Towards this two strategies may be adopted. First, develop sugar factories by privatizing the management, giving fiscal sops and putting up new sugar plants. This which would not only provide direct income and employment to cane producers, sugar factory workers, and ancillary units but would also help in generation of electric power (which is in woefully short supply in the State) and which in turn would enable other industries to develop. Molasses produced as a byproduct could be used for production of ethanol giving a further boost to income.

Secondly, develop stand-alone ethanol plants using sugar cane juice as raw material. Recent developments in fermentation technology enables efficient conversion of cane juice directly to ethanol. Using this strategy, small ethanol plants may be set up virtually all over the State. The Government / Oil companies could help in lifting the ethanol produced at stipulated prices for mixing with petrol. I would personally press for this strategy since this would have shorter gestation period, lower capital costs, and quick returns to both cane growers and ethanol manufacturers. Moreover, with increasing oil and consequently ethanol prices it makes sense to utilise entire sugar cane for production of ethanol, since it would be very remunerative and help increase incomes from the bottom up.

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