Deregulate sugar sector: Rangarajan

Oct 12 2012, 15:21 IST
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Sugar mills are mandated to sell 10% of their output to the govt for the PDS at low rates. (Reuters) Sugar mills are mandated to sell 10% of their output to the govt for the PDS at low rates. (Reuters)
SummarySugar mills are mandated to sell 10% of their output to the govt for the PDS at low rates.

A panel set up by Prime Minister Manmohan Singh has suggested the deregulation of the Rs 80,000 crore sugar sector and recommended that mills be freed from the obligation of supplying subsidised sugar to the government for sale under the public distributio(PDS)n system .

The committee, headed by Prime Minister's Economic Advisory Council chairman C Rangarajan, also pitched for freedom for mills to sell sugar, recommending the deregulation of the sector that has been stymied by tight government controls for decades now. The report has been submitted with the Prime Minister on Friday.

At present, mills are mandated to sell 10% of their output to the government for the PDS at cheaper rates that cover just around 70% of their cost of production. The government also fixes the quarterly quota of sugar that mills are required to sell in the open market, aimed at discouraging hoarding and keeping supplies steady.

If implemented, the scrapping of levy burden alone would leave an additional Rs 3,000 crore a year with the cash-starved sector, but it will also raise the Centreís food subsidy burden correspondingly. "Levy amounts to a cross-subsidy between open market and PDS sugar and is not in the interest of the general consumer or the development of the sugar sector. Therefore, levy sugar may be dispensed with," the report said.

The panel has also mooted linking of sugarcane price to the rates of its byproducts and suggested 70% of the ex-mill prices of sugar and those of each of its three major by-products--bagasse, molasses and press mud--be fixed as the dues to be paid to farmers for cane supplies. Moreover, the benchmark price fixed by the Centre--called the fair and remunerative price (FRP)--be the minimum rate for cane purchases, it added.

"The actual payment for cane dues would happen in two steps. The first would be the payment of a floor price, based on the FRP as per extant mechanism. The rest of the payment of cane dues will be done subsequent to publication of half-yearly ex-mill prices, on the lines indicated," the report said. It has also suggested a liberal export and import policy on sugar.

The panel's recommendations follow other recent reform measures announced by the government, including raising the price of subsidised fuel to trim the fiscal deficit and opening up of the retail sector to foreign supermarkets. The country is the world's biggest sugar consumer and second-largest producer after Brazil.

Industry hails Rangarajan's panel report on sugar decontrol

(PTI)

Hailing the recommendation by the Rangarajan Committee to decontrol the sugar industry, Indian Sugar Mills Association (ISMA) today said the suggestions if adopted by the Centre would help the industry in achieving faster growth and attracting investments.

The Rangarajan Committee today recommended deregulation of the sugar sector by giving freedom to mills to sell sugar in the open market.

"It's a very positive report. Industry welcomes it. If government accepts the report, sector will grow at a faster pace and there will be lot of investment at all levels including farmgate," ISMA Director General Abinash Verma said when asked about his comments on the report.

Verma said the decontrol of the sector would be in the interest of all stakeholders, including farmers, millers and consumers.

The industry has been for a long time demanding the government do away with the systems of regulated release mechanism and levy sugar obligations.

Under regulated release mechanism, the Centre fixes the quantity of sugar that mills can sell in the open market and ration shops. The levy sugar system, on the other hand, stipulates the mills to sell 10 per cent of their production to the government at below market price for ration shops.

"The sugar decontrol will lead to a stable and predictable environment," Verma said.

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