The government of India has announced a subsidy of 5% on sugar exports in the form of ‘duty drawback’ effective 1st November. This is expected to depress already low international prices.
Conceptually, duty drawback compensates an exporter for the duties and taxes that the exporter incurs on commercial transactions within the country, or on import duties. But in practice, it is used by the Government as a market intervention mechanism. Though announced yesterday (November 14th), the sop is effective retrospectively from 1st November, meaning privileged parties, if any, who were in the know and exported, will benefit from an important market determinant which was unknown to the remaining players.

By Navroz Havewala