The Government is likely to place the issue during monsoon session of the Parliament. The Centre is expected to come out with a new policy focussing on reducing the Government's control balancing the interests of millers, consumers and cane growers.

The Centre has been exercising control on the industry before and after the production of sugar. The major controls are with regard to price and distribution mechanism. Based on recommendations of the Bharghava Committee, the Centre fixes the Statutory Minimum Price (SMP) of sugarcane every season. SMP is fixed keeping in mind, interest of farmers and recovery rate and industry location. SMP serves as a guideline in the fixation of State Advised Price (SAP) for sugarcane that will be fixed by the respective state Governments. Most states enforce their own pricing policies. Mills have been advised to pay SMP to farmers within 15 days of purchase.

The mechanism of sugar entering into the market is regulated with a set of rules. Thirty per cent of sugar production has to be sold to Government at officially determined prices. The sugar thus obtained is referred to as `levy sugar' that is used to distribute sugar through public distribution system (PDS).

It is now subject to monthly release orders. The sale of the remaining 70 per cent is controlled through a system of monthly quotas fixed by the Centre. State Governments control price and movement of molasses. These controls imply that sugar units, which generate the molasses, would have to sell the molasses to buyers the Government specified, at fixed prices.Export of molasses has to be cleared by the Centre. Also, export of sugar is subject to the approval by the Centre, as only imports are placed under Open General Licence (OGL).

Decontrol of sugar industry would mean replacing the dual pricing of sugar with a single price; replacing the dual pricing of cane with a price fixed by the Centre and it would be applicable to all the states; the mechanism of monthly releases to be replaced by the futures market; no incentives for mills, mills to source their cane requirements within the radius specified; and decanalising exports. The Centre has initiated the process of decontrol of sugar industry on the recommendations of high powered Mahajan Committee. In this scenario, decontrol of sugar industry would result in replacing the dual pricing of sugar with a single price and decanalising exports. The price of the cane to be fixed by the Centre and it would be applicable to all the states. The mechanism of monthly releases to be replaced by the futures market.

In August 1978, the Morarji Desai Government decontrolled sugar prices and also did away with the release mechanism. Wholesale prices then crashed from Rs five per kg to Rs 1.5 per kg as factories flooded the market. But once they ran out of stocks, prices climbed to Rs 15 per kg, following which the Government was forced to return to a regime of full price control. This bitter experience has resulted in a cautious demands from the industry sources.

Industry feels that Government should continue its monthly release system in order to avoid price volatility. If all sugar produced enters open market (100 per cent) it may exert pressure on prices drifting it to lows. Indian Sugar Manufacturers Association (Isma) favours introduction of futures trading to allow producers to hedge to help curb extreme price volatility in the post-control regime. The Government has to buy sugar for PDS at the market rates from the mills after the decontrol. This will relieve the it subsidy. At a later stage, the Government may discontinue the PDS, as there will not be any difference in the prices with that of the market.

The competitive pricing mechanism will result in higher output of Sugar. Less pressure on prices may lead to chances of higher sugar exports. If futures trading stabilise, industry would perform better. The industry could make their investments correctly to get better returns. If they pay good remunerative prices to cane farmers, more cane would be diverted to sugar rather than gur and khandsari. Pressure on sugar prices would be minimised. More planting of sugarcane can be expected. This may result in mergers and acquisitions in the sugar industry.

However, on one hand, industry wants prices of sugar are to be fully market-determined, on the other hand, it wants the Government to regulate the quantum of supplies to the market. Hence, it would be a regime of limited-decontrol.

Sugar industry is closely watching the decontrol signals from the Centre. Though, the PDS and consumer affairs ministry, Government of India has time and again confirmed its willingness to decontrol the sugar industry, only time can tell what it finally decides.