Following two years of record production, India's sugar output (including khandsari) declined to 14.6 million metric tons (mmt) in 1996/97 and is expected to decline further to 14.2 mmt in 1997/98. Due to higher cane prices and prompt payment by mills to farmers during the current season, sugarcane and sugar production is forecast to rebound in 1998/99, and sugar output is forecast at 16.3 mmt. India will be a net importer of sugar in 1997/98 with imports estimated at 800,000 mt and forecast at 300,000 mt in 1998/99.

Various financial support programs provided to sugar mills by the central and some state governments, combined with higher sugar prices during the later half of the 1996/97 marketing year, ameliorated the financial status of most sugar mills enabling them to pay their cane payment arrears to farmers before the 1997/98 sugar seasonstarted. Most mills commenced crushing on schedule, starting in the first half of November, with the exception of around 20 mills in Maharashtra, which did not undertake production in the current season due to financial problems and a shortage of sugarcane. Despite an initial poor outlook for sugarcane output this year, production prospects improved considerably following well distributed rains during the fall and winter. However, with declining cane supplies and stiff competition from gur and khandsari producers, mills will find it difficult to maintain the production in coming months. Most sugar mills are expected to cease operation by early May, taking the effective crushing period to 130 days. Total mill sugar production in 1997/98 is estimated 13.4 mmt compared to 13.8 mmt in 1996/97.

Cane diversion for the production of gur and khandsari during the first half of the marketing year was limited due to intermittent showers during the period November through January. The return of more normal weather anda phenomenal rise in gur prices since February have led the gur and khandsari producers to procure cane more aggressively by offering competitive prices to farmers, in some areas even higher than prices offered by sugar mills. Government limits on gur stocks were withdrawn in December and gur traders and producers have begun building larger stocks to be sold later at higher profits. High molasses prices due to large scale clandestine diversion of molasses to make potable alcohol also supported high gur prices. Gur production in 1997/98 is estimated at around 9 mmt, nearly 10 per cent lower than the record 1996/97 production. Khandsari production for 1997/98 is expected to rise to 857,000 mt from last year's 807,000 mt. Total 1997/98 sugar production, including khandsari, is estimated at 14.2 mmt.

Assuming a normal monsoon this summer, 1998/99 sugarcane production is forecast to increase to 278 mmt, a 5 per cent increase over the estimated 1997/98 harvest. Higher open market sugar prices, negligible canearrears to farmers by mills, lower 1997/98 ending stocks and increased cane availability auger well for a higher mill sugar production in 1998/99, currently forecast at 15.5 mmt, a 16 per cent increase over the estimated 1997/98 production. Gur and khandsari production are forecast to decline marginally to 8.5 mmt and 807,000 mt respectively.