Column : A sweet move by Rangarajan

Oct 13 2012, 02:02 IST
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SummaryWith production just enough to meet domestic demand, this is the perfect time to decontrol sugar. Prices should remain stable.

The sugar sector is highly controlled by the government through various regulations, mostly archaic and unreasonable. Controls like a regulated release mechanism and the burden on industry to supply levy sugar at a discounted price for the public distribution system were introduced much before India gained its independence in 1947. The industry suffers an annual loss of R3,000 crore by supplying levy sugar. The release mechanism denies the mills their rights to plan their sugar sales, stocks and cash flows, very essential to timely payment of cane dues to farmers, especially during the crushing season when the cash needs are at the maximum. Quantitative restrictions and delayed permissions for specific time periods for sugar exports have resulted in lost opportunities, leading to high sugar inventories, crashing sugar prices and cane price arrears. The compulsion of packing sugar only in jute bags has not only removed competition from the packaging sector, but resulted in annual losses of R1,000 crore to the mills.

On the sugarcane side, politics in cane pricing by some states has hit the industry quite badly. The unreasonably high cane prices fixed as SAPs, without any economic basis or linkage to the final product prices, has made the industry uncompetitive within and outside the country. Indian sugar often gets priced out from the global market due to high costs of production. Payments to farmers in some years get delayed if the returns to mills are low, leading to huge cane price arrears. The absence of any relationship between the raw material and product price is seen to be the main cause of cyclicality in sugarcane and sugar production.

Recognising all the above problems, the Rangarajan Committee has recommended a total decontrol of the sugar sector—a much-awaited, welcome step in the right direction. The committee correctly feels that this R80,000 crore industry has the potential to grow into a R1,60,000 crore industry in the next 4-5 years. It has been accepted that this sector requires and certainly deserves investments both at the factory level as well as at the farm level. In view of the growing domestic demand for sugar, expected to reach around 31-32 million tonnes in the next 7-8 years, such investments will be crucial. The sugar industry already has a capacity to produce 30 million tonnes of sugar, and, therefore, with improved availability of sugarcane, the higher domestic demand can be comfortably met.

The scope of increasing cane

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