JOIN USFinance ministry opposes proposal to decontrol sugar
The Food Ministry’s proposal to decontrol the sugar industry by doing away with the levy system has been opposed by the Ministry of Finance as the move could trigger inflation and subsidy burden on the exchequer.
On the Food Ministry’s proposal, the Finance Ministry observed that if the levy on sugar is removed, the government would bear the entire burden of distribution of cheap sugar through ration shops.
Finance Minister P Chidambaram also opposed Food Minister K V Thomas suggestion to impose excise duty on sugar to raise fund to match subsidy burden apprehending that it would lead to increase in sugar prices in the open market.
Recently, the Food Ministry moved a cabinet note on decontrol of sugar by abolishing the levy system and suggested purchasing sugar from the open market to distribute it to the poor. The Food Ministry also recommended imposition of excise on sugar in the open market and mobilise the money to match subsidy component.
Currently, sugar mills have to sell 10 per cent of their total production to the government at Rs 19.04 per kg which are distributed to the poor under public distribution system. The government then sells this sugar at Rs 13.50 per kg to 6.52 crore poor families, bearing a subsidy of Rs 2,300-2,500 crore a year. The government sells 2.6-2.7 million tonnes of sugar annually through ration shops.
Now both sugar industry and government together take the burden. If the levy system is removed, then entire burden will be on government as it has to purchase it from open market where the price of per kg sugar is Rs 36 to 40 per kg. This would lead to subsidy burden on exchequer will be more than Rs 5,000 crore per annum against the current Rs 2,500 crore, said an official from the Finance Ministry.
The sugar industry has been pressing the government to scrap levy sugar obligations saying that it would help the sector to grow and attract investment.
Even Agriculture Minister Sharad Pawar and Planning Commission Deputy Chairman Montek Singh Ahluwalia have strongly batted for the Food Ministry’s proposal.
Even the Prime Minister’s Economic Advisory Council (PMEAC) chairman C Rangarajan, also recommended for deregulating the sugar industry by giving freedom to mills to sell sugar in the open market. It also suggested the government to purchase sugar from open market and supply to PDS shops at subsidised rate.