In a letter to PM Manmohan Singh earlier this month, food minister K V Thomas said any decision to raise the import duty on sugar from the current 10% when cane crushing is over "could lead to an immediate increase in the domestic sugar prices by Rs 2-3 per kg."
"Recent tenders for levy sugar (sugar meant for welfare programmes) by state governments have already touched or exceeded a landed price of Rs 32 per kg. Above the price, the central government will not fund any additional subsidy. There could be a negative feedback on the sugar decontrol decision if the state governments are forced to fund some of the levy subsidy in the first year of reforms itself," Thomas said.
Pawar had earlier written to finance minister P Chidambaram to raise the import duty as cane arrears of sugar mills had exceeded Rs 10,000 crore, thanks to cheaper inflows from overseas that had dragged down domestic prices, hurting mills' ability to pay for the raw material.
In April, the Cabinet Committee on Economic Affairs approved a food ministry proposal to partially deregulate the sector by allowing mills freedom from supplying subsidised sugar for state-run welfare programmes also known as levy sugar among others, as suggested by the Rangarajan panel last year. With political considerations weighing on sugarcane pricing and mills forced to supply levy sugar, the sector had seen its fortunes wane in recent years, and the decision to unshackle the sector from some controls was hailed by the industry.
The Centre decided that states would float tenders to buy sugar for the public distribution system and it would offer subsidy on purchases subject to the maximum price of Rs 32 a kg. States have to pay from their own coffer the additional subsidy if the purchase price of sugar for the PDS exceeds Rs 32 a kg.
At present, sugar is sold to the poor through ration shops at Rs 13.50 per kg. The country requires around 2.7 million tonne of sugar a year for state-run welfare programmes.
"I am, therefore, of the view that we may await the first advance estimate of sugarcane production, which would be available in the month of September and then a decision in this regard could be taken," Thomas said in the letter.
Imports of around 600,000 tonne since last October on top of surplus domestic production and bumper stocks from previous years have dragged down wholesale prices by 10-15% in the past 6-7 months, industry executives said, seeking to stop dumping of sugar from overseas.