Govt mulls IMG to vet sugar decontrol report

Written by Banikinkar Pattanayak | New Delhi | Updated: Nov 30 2012, 09:36am hrs
The government is considering setting up an inter-ministerial group, to be headed by agriculture minister Sharad Pawar, to examine recommendations of the Rangarajan panel on deregulating the sugar sector.

An IMG could soon be set up as the government wants to consider implementing at least some of the proposals submitted by Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan, if not all. At least those proposals which can be implemented by the Centre alone could be looked into, a senior government official told FE.

The IMG may comprise ministers of finance, food, commerce and new and renewable energy, he added.

The Rangarajan panel, set up by Prime Minister Manmohan Singh in January, suggested in October that mills be freed from the obligation of supplying subsidised sugar for the public distribution system (PDS). The committee also pitched for the scrapping of the release order mechanism through which the government controls sugar sales in the open market and sought to link the price of sugarcane to its byproducts, among others.

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

It has also suggested a stable export and import policy on sugar and appropriate tariff in the form of a moderate duty on imports and exports, not exceeding 5-10% ordinarily, as opposed to outright ban or quantitative restrictions, should be used to meet domestic requirements of sugar in an economically efficient manner".

Apart from linking cane prices to the byproduct rates where states have a role and cane are de-reservation, all other major recommendations, including on levy sugar and release order mechanism, can be implemented by the Centre, industry executives said.

At present, mills are mandated to sell 10% of their output to the government for the PDS, known as levy sugar, 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. Moreover, while the Centre fixes the minimum benchmark price of sugarcane, some states notify much higher prices of the commodity, which, mills complain, bleed their balance sheets when sugar price remains subdued.

The food ministry has already sought responses from key cane-producing states regarding the Rangarajan panel report, submitted last month. 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 Centres food subsidy burden accordingly.

Efforts at lifting government control twice in the 1970s met fierce political resistance, mainly on concerns that domestic sugar prices would shoot up, and the issue was dropped. The benefits of liberalisation have also not been extended to the sugar industry, while the government has shed control over sectors such as telecom and cement over the years. Moreover, recommendations of panels, including the Mahajan committee, Tuteja committee and Thorat committee, set up in the past to consider decontrolling the sugar sector, were hardly implemented.

However, last month, food minister Thomas had said the government would take a time-bound decision on the committee's recommendations on decontrol and won't relegate them to the background.