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Government decontrols sugar, at last

business Updated: Apr 05, 2013 00:32 IST
HT Correspondent
HT Correspondent
Hindustan Times
india sugar industry

The government has lifted key restrictions on how sugar is sold, dismantling one of the last vestiges of the ‘licence-raj’ era, long overdue and blamed for hurting cane farmers, millers and consumers alike.

Sugar is a globally controlled commodity but India, the world’s second-largest producer, regulates it the most. The cabinet on Thursday abolished a rule that makes it mandatory for mills to sell 10% output to the government at below-market prices so that this could be supplied to the poor, termed ‘levy sugar’. The move will help avoid sharp swings in retail prices and stabilise production, according to a panel that recommended lifting of the curbs.

It is in step with a key recommendation of a committee set up by the PM and led by Chakravarthi Rangarajan, the PM’s economic advisory council chief.

Levy sugar sales often hurt millers’ profitability, making them unable to pay farmers on time.

The sugar industry owes nearly R5,490 crore in payment arrears to farmers, which often prompts cane growers to shift to other crops every two years or so. This leads to occasional shortfall in sugar output, pushing up consumer prices and a glut-deficit cycle.

From fields to factories to shops, sugar passes through a maze of tight controls. The government also fixes the amount each mill can sell in the open market every month and creates compulsory zones from where mills can be set up. This hampers the profitability of millers and farmers' bargaining power.

Since the government will now have to buy sugar at market rates from millers, its sugar subsidy bill will go up by about Rs. 2,600 crore, so that those below the poverty line can continue getting the sweetener cheap. The government may propose an excise duty to make up for the loss, sources said.

However, to assure that farmers get assured prices, the government would continue to decide the price of cane through the "fair and remunerative price mechanism".

Attempts to decontrol sugar were first made in 1971-72 and several times later, only to be shelved.