NEW DELHI (Commodity Online): India’s festival season is all set to leave a bitter taste for the common people with prices of several commodities, especially sugar, skyrocketing.

Sugar prices in India have been surging for several weeks now. Exacerbated by global cues, it seems to have gone completely out of the government’s control. In Mumbai, the retail rate of Sugar is close to Rs 40 a kg. Sugar has a strong weightage in the consumer price index. Worse, the situation is compounded by rising prices of other essential food items such as pulses, rice and edible oil.

Exploding sugar prices have turned politically sensitive with some state elections, notably Maharashtra, round the corner.

Primarily, the government dragged its feet for too long in first recognising the existence of the problem of shortage and need to augment supplies. After the problem snowballed in terms of escalating prices, the way it was handled left much to be desired.

There were allegations that Sharad Pawar, the agriculture minister, who hails from Maharashtra which is a major producer of sugar, wanted the sugar prices to go up so that sugar-cane farmers in his state will be happy. So that in the October Assembly elections, his party can reap rich dividends in Maharashtra.

The problem associated with emerging sugar shortage during 2008-09 was evident as early as July 2008. On July 26, 2008, it was certain that Sugar prices will go up because of lower acreage and lower cane output. Still, exports continued merrily for many more months, that too with incentives.

Planning for 2009-10 ought to have started by September 2008. The situation is unlikely to change until end-2010 when next year’s cane harvest begins. For 2010-11.

The political fallout of high food inflation is perceived to be a negative one for the present government unless dramatic initiatives are taken to contain prices.

Taking a cue from India’s plight, world sugar prices have touched multi-decade highs. Speculators in international commodity exchanges have made windfall profits because of India’s muddled response to the sugar crisis. In the international market, sugar prices are consolidating around the new higher trading range which is about 22 cents a pound, a 28-year high.

The evolving situation in India, the world’s largest sugar consumer, remains the focal point of the global price rally. Low output for second year in a row, low inventory and steady consumption have triggered a massive price rally, exacerbated by flow of speculative capital.

Over the next four weeks, world prices have the potential to rise to about 27 cents a pound which means a possible rise of about 20 per cent. Such a further price escalation if realized will have a direct bearing on Indian sugar prices because of growing import dependence.

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