Decontrol sugar, suggests panel

If accepted, one of the last bastions of administered prices will crumble

In a move that can have a far reaching impact on producers, consumers and the industry, an expert panel on Thursday suggested lifting of government’s decades-long control on sugar industry that can address large-scale production swings and demand-supply imbalances that cut profit margins of producers.

The recommendation was among several made by a committee headed by Dr C Rangarajan, head of the Prime Minister’s Economic Council. The committee also suggested abolishing 10 per cent of mills’ supply to the government for distribution among the poor, called levy sugar, lifting of restrictions on export of the commodity and a rise in payment of revenues to cane farmers by the millers.

Sugar is the most tightly controlled commodity in India. The government regulates nearly every aspect of the industry, including the allowable distance between two mills, the region from which a particular mill must buy its cane and the price that a mill must pay for the cane.

The committee has suggested a lot of freedom to the mills to sell sugar in the open market and also get the benefit of exporting and importing the commodity in the international market depending on the prices which suit the traders.

The recommendations were hailed by the Indian Sugar Mills Association Director General Avinash Verma, who said that the recommendations, if implemented, would herald major reforms in the sugar sector in India through enhanced supply resulting into stabilisation of sugar prices in the market.

“It will result in enhanced investment in the sugar sector and increase in production by bringing in economies of scale, which will finally result in stabilising sugar prices,” Verma told Deccan Herald.

He, however, apprehended that a decision on removal of levy sugar, which is expected to raise government’s subsidy bill by about Rs 2,500 crore, may face some hurdle from many quarters. The millers are expected to earn Rs 3,000 crore of additional revenue if the levy sugar regime is scrapped.

Food Minister K V Thomas said his ministry would take a time-bound decision on the recommendations.

The minister noted that the government’s aim was to protect the interest of farmers, consumers and the mills. “The final call on the recommendations would be taken keeping
this principle in mind”.

The only suggestion, which may seem detrimental on the face value to the sugar mill owners, was the mandatory requirement for them to pay 70 per cent of their revenues to sugar cane farmers. But, that too was welcomed by the producers, who said they were currently paying much more by way of levy sugar. India is probably the only country in the world that has the levy sugar restriction, which is seen to be not benefitting the intended beneficiaries due to leakage in the mechanism.

But, much depends on the implementation of the recommendations and whether the government will be able to accept it fearing the political opposition to another economic reform. Earlier in 1970s, two such attempts by the government to decontrol the sugar sector had to be rolled back. UPA allies from sugar-producing States are also likely to oppose the suggestions.

The government has also not yet implemented the recommendations of  the earlier Tuteja and Thorat committees on sugar decontrol.

Sweet proposal

* Stop supply of levy sugar
* Allow export of commodity
* Free mills to sell in open market
* More payment to cane farmers