The Not-So-Sweet Truth About Sugarcane Subsidies

Maharashtra is one of the most drought-affected states of India, and scarcity of water has always been a major concern for the people, especially in the western region of the state. In 2016, Maharashtra government declared drought in over 29,000 villages. Jayakwadi dam in Aurangabad district in the state observed the worst drought in the century. Only one percent water was left of its 2.17 billion cubic meter capacity. This wasn’t always the case. Given the severity of the situation, one must wonder why Maharashtra has come to face such acute water shortage? The main reason for the water scarcity in the state is the subsidies which were given by the state government to companies for setting-up sugar mills. Author and economist Vivek Kaul in his book India’s Big Government highlighted that licenses were granted on a priority basis for the sugarcane industry. The government also contributed up to 75% of the start-up capital to cooperative sugar mills. Additionally, the government guaranteed loans given by financial institutions to these cooperatives. In the financial year 2016-17, the state was the second largest producer of sugarcane and contributed 21.7% of the total sugarcane output in the country. As the Economic Survey of 2015-16 points out, sugarcane is grown on only 4% of the total cropped area in Maharashtra; however, it uses 70% of the state’s irrigation water. But why were farmers in the state producing more than one-fifth of total sugarcane output of India? The reason was the vicinity to the sugar mills that started with subsidies from the government. Since they were in the state, the farmers slowly switched to growing sugarcane instead of other crops. As Kaul has noted, in the financial year 2014-15, the state produced 10.5 million tonnes of sugarcane, and since 2,000 litres of water are needed to produce 1 kg of sugarcane, 22.1 trillion litres of water were used in growing the crop. Certainly, this is something that should have been undertaken in a state with abundant water and not someplace which is already drought-prone. Even as the original intention of the subsidies were noble – to provide employment opportunities to rural youth and develop the sugar industry in the state, the resulting scarcity of one of the most basic resources has made the people of the state worse off. While some jobs were created in the sugar mills, they came at the expense of millions of people who struggle to meet their daily water requirement. If only the government had foreseen the unintended consequences of the subsidies, the state could have avoided facing drought year after year.