Sugar not an essential commodity: KPMG

The sugar industry may soon be contesting the inclusion of the commodity under the Essential Commodities Act and the higher weight given to it in the wholesale price index (WPI).

The research firm KPMG has done a study on the sugar industry, which shows that sugar cannot be considered an essential commodity. The study says that the bulk of domestic sugar consumption is done by user industries like confectionery, beverage, sweetmeats, etc.

Of the 20 million tonne sugar consumed annually in India, nearly 70 per cent is used indirectly by these bulk users while direct consumption accounts for only 30 per cent.

Therefore, there is no justification for treating sugar as an essential commodity, said S L Jain, director general of Indian Sugar Mills' Association (ISMA). He added that nowhere in the world sugar is an essential commodity.

The KPMG study was commissioned by ISMA and the National Federation of Cooperative Sugar Factories. Sugar is a commodity covered under the Essential Commodities (EC) Act, 1955 and is subject to various controls under various provisions of the said Act.

The government regulates the sale of sugar through a monthly release mechanism and it also sources sugar for its public distribution system (PDS) from the industry at a concessional rate. Every sugar producer has to give 10 per cent of his output to the government for PDS requirements.

Since August last year, the rapid decline in sugar prices has been unfairly utilised by the government to create a negative impact on the WPI. This was done at the cost of the sugar industry and millions of farmers.

The high weight to sugar and its rising prices were the pretext on which government announced an export ban on the commodity.

The ban, that was imposed in June had severely affected the domestic industry and contributed to the crash in sugar prices. The crash in prices has made payment of cane prices difficult, with cane arrears standing at Rs 3,000 crore.

While sugar's weight was increased from 2.01 per cent to 3.61 per cent in 1994, the study has concluded that it should not be more than 2 per cent.

The unfairness of the unjustly high weight of 3.62 per cent given to sugar is clearly evident by the fact that within the group of food articles, pulses, which is consumed by every household in considerable quantities, has a weight of only 0.6 per cent, vegetables 1.46 per cent, fruits 1.46 per cent and edible oil 2.76 per cent, added Jain.