<p>The Centre has recently announced a major policy decision by partially decontrolling the sugar industry. Though the sector hailed the decision, saying that this will fuel the industry’s growth, one has to wait and see how ‘sweet’ it will be to the consumers, particularly with regard to prices of sugar. </p>.<p>With this decision, the sugar prices will be completely market determined which is broadly in line with the freeing of petrol from price control mechanism.<br /><br />Taking a cue from the recommendations made by a committee headed by the prime minister’s economic advisory council chairman C Rangarajan on removing the government shackles on sugar industry, the government abolished the ‘levy sugar’, which deals with the supply of sugar to the public distribution system (PDS) by the sugar industry. Levy sugar for the PDS will now have to be procured by state governments from the open market at prevailing market prices through open bidding.<br /><br />The quantity of levy sugar procured for PDS and its retail price for the BPL families at the ration shops will remain unchanged at the current rate of Rs 13.50 per kg. The Central government is to provide subsidy to state governments to meet the difference between the PDS retail price of Rs 13.50 per kg and the price of sugar procured from open market by the states, subject to a maximum purchase price of Rs 32 per kg over the next two years.<br /><br />Until now, each sugar factory had to supply 10 per cent of its total production as levy sugar to the government for PDS at 60 per cent of its cost of production. The scrapping of levy system will help the industry save about Rs 3,000 crore annually. And the Centre has to bear the burden of subsidy to the tune of Rs 5,300 crore per annum as against Rs 2,600 crore being spent now.<br /><br />Another major decision was the removal of regulated release mechanism for non levy sugar. This means, the factories are now free to sell their product according to their wish and the government will have no role in it. Till now, the government was dictating the sugar factories on what quantity of sugar they would have to sell in the open market on a monthly basis.<br /><br />Union food minister K V Thomas says the government’s decision will be a win-win situation for both government as well as farmers. While industry can grow by attracting additional investment, they can also clear farmers’ arrears at the earliest instead of delaying the payment for supplying cane. </p>.<p>Allaying apprehensions of increase in prices of sugar in the open market, the minister claimed that “prices will stabilise as factories will be forced to release sugar as per the market demand”. <br /><br />Price fluctuation<br /><br />However, officials in the food ministry do apprehend that there will be price fluctuation in the open market. Though there may not be any steep rise in prices when production is good, the situation will not be the same when sugarcane crop is hit by erratic rainfall.<br />Sugar production is estimated to be around 245 lakh tonnes in the current season (October-September) against the domestic consumption of 220 lakh tonnes. With an opening stock of 60 lakh tonnes, there is no threat of sugar prices going up this year, the officials say.<br /><br />The decision has drawn flak from the communist parties and the farmers’ body, the All India Kisan Sabha who have said that the decontrol decision would lead to rapid hike in prices and would encourage profiteering by mill owners. The government “will increase the sugar prices after the elections, without any doubt. Decontrolling of sugar will result in increase of sugar prices in the market which will be an additional burden on the consumers", said the CPI central secretariat.<br /><br />On the other hand, the All India Kisan Sabha (AIKS) said the decision “will only promote the interests of the profit-seeking corporate sugar mills at the expense of farmers, consumers and the cooperative sector. Clearly the government has stood by the Rs 80,000 crore sugar lobby and removed controls to facilitate unbridled profiteering,” it said.<br /><br />Interestingly, the Centre did not touch upon the some of the ‘sensitive’ suggestions of the Rangarajan committee report relating to cane area reservation, minimum distance criteria and adoption of the cane price formula. Instead, the government of India has left it to the state governments to adopt these measures. </p>.<p>Though the committee favoured doing away with the state advised prices (SAP) for sugarcane, which is prevailing in most of states, including Uttar Pradesh and Tamil Nadu, the Centre has been cautious not to enforce it.<br /><br />“As the state governments always announce higher prices than the cane purchase price, known as the fair remunerative price (FRP) for companies suggested by the Centre, the Union government seems to treading cautiously on this issue fearing criticism from the farming community”, said an official.<br /><br />Though the Centre will now face a bigger burden, the Centre plans to pass on the burden to states after two years. This means, in future the states has to raise their own money to supply sugar to poor at subsided rate. <br /><br />The Indian Sugar Mills Association, which represents about 243 companies, said abolition of regulated release mechanism would reduce inventories and ensure better cash flows. “The reforms approved by the government for the sugar sector in India will make the industry more viable, attractive and bankable. It will attract large-scale investments from within the country as well as from abroad,” ISMA said.</p>
<p>The Centre has recently announced a major policy decision by partially decontrolling the sugar industry. Though the sector hailed the decision, saying that this will fuel the industry’s growth, one has to wait and see how ‘sweet’ it will be to the consumers, particularly with regard to prices of sugar. </p>.<p>With this decision, the sugar prices will be completely market determined which is broadly in line with the freeing of petrol from price control mechanism.<br /><br />Taking a cue from the recommendations made by a committee headed by the prime minister’s economic advisory council chairman C Rangarajan on removing the government shackles on sugar industry, the government abolished the ‘levy sugar’, which deals with the supply of sugar to the public distribution system (PDS) by the sugar industry. Levy sugar for the PDS will now have to be procured by state governments from the open market at prevailing market prices through open bidding.<br /><br />The quantity of levy sugar procured for PDS and its retail price for the BPL families at the ration shops will remain unchanged at the current rate of Rs 13.50 per kg. The Central government is to provide subsidy to state governments to meet the difference between the PDS retail price of Rs 13.50 per kg and the price of sugar procured from open market by the states, subject to a maximum purchase price of Rs 32 per kg over the next two years.<br /><br />Until now, each sugar factory had to supply 10 per cent of its total production as levy sugar to the government for PDS at 60 per cent of its cost of production. The scrapping of levy system will help the industry save about Rs 3,000 crore annually. And the Centre has to bear the burden of subsidy to the tune of Rs 5,300 crore per annum as against Rs 2,600 crore being spent now.<br /><br />Another major decision was the removal of regulated release mechanism for non levy sugar. This means, the factories are now free to sell their product according to their wish and the government will have no role in it. Till now, the government was dictating the sugar factories on what quantity of sugar they would have to sell in the open market on a monthly basis.<br /><br />Union food minister K V Thomas says the government’s decision will be a win-win situation for both government as well as farmers. While industry can grow by attracting additional investment, they can also clear farmers’ arrears at the earliest instead of delaying the payment for supplying cane. </p>.<p>Allaying apprehensions of increase in prices of sugar in the open market, the minister claimed that “prices will stabilise as factories will be forced to release sugar as per the market demand”. <br /><br />Price fluctuation<br /><br />However, officials in the food ministry do apprehend that there will be price fluctuation in the open market. Though there may not be any steep rise in prices when production is good, the situation will not be the same when sugarcane crop is hit by erratic rainfall.<br />Sugar production is estimated to be around 245 lakh tonnes in the current season (October-September) against the domestic consumption of 220 lakh tonnes. With an opening stock of 60 lakh tonnes, there is no threat of sugar prices going up this year, the officials say.<br /><br />The decision has drawn flak from the communist parties and the farmers’ body, the All India Kisan Sabha who have said that the decontrol decision would lead to rapid hike in prices and would encourage profiteering by mill owners. The government “will increase the sugar prices after the elections, without any doubt. Decontrolling of sugar will result in increase of sugar prices in the market which will be an additional burden on the consumers", said the CPI central secretariat.<br /><br />On the other hand, the All India Kisan Sabha (AIKS) said the decision “will only promote the interests of the profit-seeking corporate sugar mills at the expense of farmers, consumers and the cooperative sector. Clearly the government has stood by the Rs 80,000 crore sugar lobby and removed controls to facilitate unbridled profiteering,” it said.<br /><br />Interestingly, the Centre did not touch upon the some of the ‘sensitive’ suggestions of the Rangarajan committee report relating to cane area reservation, minimum distance criteria and adoption of the cane price formula. Instead, the government of India has left it to the state governments to adopt these measures. </p>.<p>Though the committee favoured doing away with the state advised prices (SAP) for sugarcane, which is prevailing in most of states, including Uttar Pradesh and Tamil Nadu, the Centre has been cautious not to enforce it.<br /><br />“As the state governments always announce higher prices than the cane purchase price, known as the fair remunerative price (FRP) for companies suggested by the Centre, the Union government seems to treading cautiously on this issue fearing criticism from the farming community”, said an official.<br /><br />Though the Centre will now face a bigger burden, the Centre plans to pass on the burden to states after two years. This means, in future the states has to raise their own money to supply sugar to poor at subsided rate. <br /><br />The Indian Sugar Mills Association, which represents about 243 companies, said abolition of regulated release mechanism would reduce inventories and ensure better cash flows. “The reforms approved by the government for the sugar sector in India will make the industry more viable, attractive and bankable. It will attract large-scale investments from within the country as well as from abroad,” ISMA said.</p>
