Union food minister Sharad Yadav has approved the creation of a 2-million tonne buffer stock of sugar.
The proposal will now go to the agriculture and finance ministries for their comments and will then be placed before the Cabinet.
The sugar industry had been demanding the creation of a buffer stock for the past few years to stabilise the sector and help it tide over the problem of plenty.
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In 1982, under a long-term policy for buffer stocking operations, the government had allowed stocking for sugar as part of the sugar development programme through the Sugar Development Fund. In fact, since 1982, buffer stocks were created on four occasions.
At present, out of the total central cess of Rs 140 per tonne, Rs 90 is collected for the Sugar Development Fund.
The main argument for not creating a buffer stock was that there was no imminent shortage of sugar as the output was expected to remain high.
But the industry had argued that in the past, the buffer stocks had always been liquidated within one year irrespective of the production and stock situation.
The primary reason for creation of a sugar buffer stock in the past had been the imperative need for funding of additional interest and other costs.