Sugar stocks witnessed profit booking on August 25 after the government relaxed rules governing duty free imports of raw sugar, giving importers greater flexibility to process the commodity into refined sugar and sell it in the domestic market. The move is aimed at improving sugar availability and containing a sharp rise in prices ahead of the festive season.

Under its August 20 notification, the government had permitted duty free imports of up to 1 million tonnes of raw sugar under a tariff rate quota until October 31, 2026. Importers were required to refine the imported raw sugar into white sugar and sell it in the domestic market by the same deadline.

The Directorate General of Foreign Trade has now replaced the fixed October 31 deadline with a two month window from the date of filing the Bill of Entry. The revised provision is expected to provide importers with greater flexibility in processing raw sugar and supplying refined sugar to the domestic market.

The government has also permitted a one time conversion of existing Advance Authorisations issued under SION E 52 into the tariff rate quota scheme. The provision covers raw sugar actually imported under these authorisations up to August 20, including refined sugar already produced as well as sugar that will be processed from the imported raw material. The conversion is subject to repayment of the GST exemption availed at the time of import and other applicable conditions.

The policy changes come after a strong rally in sugar stocks during August, with several companies in the sector gaining between 20% and 30%. The subsequent easing in import norms triggered profit booking across the sector.

On August 25, Balrampur Chini Mills, EID Parry and Triveni Engineering were trading around 1.8% to 2.6% lower. Bajaj Hindusthan Sugar, Shree Renuka Sugars and Bannari Amman Sugars declined about 3.4%, 2.8% and 2%, respectively.

The government measures come against the backdrop of a sharp increase in domestic sugar prices. Sugar prices rose to Rs 63.05 per kg on August 24 from Rs 48.18 per kg on July 20. The government has attributed the increase to lower than expected sugar production, weather related crop damage, concerns over global supplies and stockpiling.

The government has, however, rejected the diversion of sugar towards ethanol as the primary reason for the recent price increase. Domestic sugar inventories are estimated at around 3.5 million to 3.9 million tonnes, below the government's normative buffer stock requirement of 6 million tonnes.

Alongside easing import rules, the government is taking steps to discourage stockpiling. From September 1, the stockholding limit for bulk sugar consumers will be reduced by half to 15 days of consumption. The measure is intended to contain hoarding and speculative activity during the August to November festive period, when sugar demand typically increases.

The government has also increased scrutiny of sugar mills and directed them to submit transaction level details of sales conducted between August 17 and 19, including quantities sold, transaction prices and buyer information.

The combination of easier imports, tighter stockholding limits and increased monitoring is aimed at improving domestic sugar availability and moderating prices. For sugar producers, however, the measures could weigh on near term pricing expectations after the sector's strong August rally.