NEW DELHI India is keen to import 2 million tonnes of duty-free white sugar in the next six months, trade and industry sources said, but limits on stocks held by dealers may depress prices, making overseas purchases unviable.
A senior industry official on Thursday said the government had sought the Election Commission's approval to cut import duty on white sugar, currently 60 percent, to zero.
The government wants two state-run trading firms, STC and MMTC, to import 1 million tonnes each of white sugar in the next six months, the source, who has direct knowledge of the proposal, said.
"These will be commercial transactions, and if these companies incur any loss in domestic sales, the government will not compensate them," the source told Reuters.
India has fixed a limit of 200 tonnes for sugar stocks held by dealers and directed them to sell supplies within 30 days of purchasing the commodity, according to a government statement on Thursday.
Sugar futures at the National Commodity and Derivatives Exchange fell nearly 1 percent after the announcement, which is expected to depress local prices by up to 10 percent in the next two weeks, traders say.
India is the world's biggest consumer of sugar, but normally grows enough to meet domestic demand and last year exported a record 4.9 million tonnes of sugar. But this year output is expected to fall sharply and the government has already eased norms for importing raws to offset the decline in production.
While domestic sugar prices have fallen from their peaks a month ago, they are still up more than 10 percent since January, and the government is eager to open the door for more imports to prevent higher prices giving opposition parties a boost ahead of elections in April and May, analysts say.
European traders expressed scepticism that India would remove the import duty on white sugar before the election.
"This (lifting the duty) according to some of our contacts who are well connected and versed in India, is highly unlikely," David Sadler, a senior sugar trader with UK broker Sucden, wrote in a daily sugar market report.
"It is doubtful that the government will make any moves in that direction prior to the up coming election. It is also thought that at the current differentials that the import of whites is not cost effective."
While India's election authorities can stop the government from taking measures that may be seen as attempting to sway voters, some analysts said the request would be approved.
"I think they may get permission, looking at the sugar prices. It may come in 3-4 days," said Veeresh Hiremath, senior analyst with Karvy Comtrade, a commodity brokerage based in Hyderabad.
Importing whites would get supplies directly to market, bypassing millers, who prefer to import raw sugar that they can process and sell domestically and are lobbying against the move. Indian firms have already bought a number of raw sugar cargoes and may import up to 2 million tonnes in the year to September.
"Domestic prices are stable for the past one month. They are not flaring," said Narendra Murkumbi, managing director of Shree Renuka Sugars, which processes imported raws at its coastal refinery.
London May white sugar futures have jumped in the past two days on expectations of Indian imports, but actual order size will depend on prevailing prices, traders and analysts said.
"It depends on what bids they get," Hiremath said.
An official at a trade body said that at current prices, imported white sugar may not be cheaper than the existing retail prices in India.
Last month, India's MMTC scrapped a tender to import 35,000 tonnes of raw sugar because the bids were too high.
The farm minister has said production in the crop year ending September 2009 could fall by more than one-third to about 16.5 million tonnes from an estimated 26.5 million tonnes in 2007/08.
(Additional reporting by David Brough in LONDON, Himangshu Watts in NEW DELHI and Rajendra Jadhav in MUMBAI)