Column : Freeing sales can sweeten reforms

Feb 12 2013, 00:09 IST
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SummaryGovt should neither impose levy sugar obligation on mills nor regulate release mechanism.

The Rangarajan committee, set up by the Prime Minister for studying and recommending reforms in the Indian sugar sector, submitted its report in October 2012 on the roadmap for its growth. Clearly dividing the government controls into two parts—sugar sales-side and sugarcane-side controls—the committee suggested a two-phased reform. Establishing that the controls on sugar—levy sugar obligation on mills, regulated release mechanism, export-import controls and compulsory packing of sugar in jute bags—are harming the sector, the committee has recommended their immediate decontrol/reforms in the first phase. The cane-side controls, exercised by the states, and which directly affect farmers and include pricing of sugarcane, cane area reservation and minimum distance between mills, have been suggested for further discussions and reforms in the next 2-3 years.

The government in May 2012 had moved from quantitative and time restrictions/bans on sugar exports, to a flexible tariff rate policy to manage sugar availability in the country. The sugar packaging requirements have also been relaxed, from a 100% use of only jute bags till last season, to 40% from the current season. The other two sugar-side controls to be taken up in phase 1 itself—levy sugar obligation on mills and regulated release mechanism—are on the government’s agenda next, for which a decision is expected in February 2013. These controls are not only unfair to the industry, but also to the 50 million farmers and their families. They harm the consumers too in the long run. The Rangarajan committee has, therefore, recommended their immediate abolition.

No other industry in India, or any sugar industry abroad, is required to give up a part of its produce to the government for the PDS, as levy, at 60% of its cost of production or at two-thirds the open market price. Mills have to also carry the ‘unlifted’ obligation physically by two years, and supply it thereafter at previous year’s price, foregoing the extra carrying cost and interest burden borne in the process. The industry suffers a direct annual loss of over R3,000 crore, which is either borne by the mills by way of lower returns on their produce, the farmers by way of lower cane price, the consumers by way of increased sugar price, or partly by all the three. Reduced paying capacity of mills translates into reduced cane price to farmers. The Rangarajan committee agrees that the open market consumers cross-subsidise the levy sugar consumers (by almost R1,000 per tonne). Why

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